6 ms·

Isn't this a side affect of rising interest rates? Two years ago (when I bought my current house) I got about 3.25% interest. Which means a 200K mortgage is $

Isn't this a side affect of rising interest rates? Two years ago (when I bought my current house) I got about 3.25% interest. Which means a 200K mortgage is $870/mth. With 5%, the mortgage would have to drop to 162K to have the same monthly payments -- almost a 40K drop in house price (about 16%, assuming the mortgage makes up 80% of the home price).

ataturk 8y ago
I don't really believe anyone cares. It's Fall, people drop prices to sell before the holiday season. It could just be a normal thing that happens every year just like fewer houses sell in December because of Christmas. People don't move after Labor Day if they have school-age kids because it's so hectic once school starts. There is just normal stuff that goes on that is not any kind of indicator of impending doom. I am sitting on a $100K down payment awaiting a market correction, but I won't wait forever. It's hard to just have that money in brokered CDs, but that's where it is for now. 2008 was the big correction, it could be 20 years before we get another one.
jackcosgrove 8y ago
In theory, yes. In practice, no. https://www.calculatedriskblog.com/2013/06/house-prices-and-mortgage-rates.html https://www.calculatedriskblog.com/2013/06/house-prices-and-... "There’s no strong correlation between interest rates and home prices,” said Douglas Duncan, chief economist at Fannie Mae.
- YZF 8y ago
  I would say looking at those graphs that the interest rates going down from ~1982 look pretty correlated to the real house prices going up till ~2008. Especially for the post 1999 or so period. Then we had the bubble, then we had a crisis from a slight raise of rates. House prices move really slowly. You also probably want to look at real rates rather than nominal rates, for some of the period rates were high because inflation was also high. If interest rates keep heading up it's a good bet we're setting up for a repeat of that last crisis. Let's hope the banks are better prepared and have loaned money to less questionable people. It would also be instructive to see the shorter term rates, not everyone finances for 30 years. So I would say in theory and in practice interest rates have major impact on house prices. We would not have the bubble without the low interest rates as people wouldn't not be able to finance the purchase of those houses at those prices.
- pyoung 8y ago
  The house-price-to-income ratio has been historically high these last 1-2 decades, which will result in interest rates playing a bigger role in prices than they have in the past. Especially in the hotter coastal markets where affordability is a major issue. Part of this is structural as well, as most banks have strict debt-to-income ratios for their mortgages, so if interest rates go up, either incomes need to rise or prices need to come down to maintain the same level of demand.
- Erlich_Bachman 8y ago
  > hief economist at Fannie Mae. So the same company that lied through their teeth during the 2008 crisis and buildup to it, to give the banks ability to package junk loans as AAA CDOs? The one that had to be bailed out by the taxpayer eventually? Sure, let's listen to them, they sound like a trustworthy source.
  - jackvalentine 8y ago
    He wasn't working there at the time - only started in 2008 post subprime crisis. Please don't argue ad hominem, if you have an issue with the statement then make your objection directly.
    - cheez 8y ago
      Taleb calls these people IYIs: intellectual yet idiot. There is nothing exceptional about THIS economist that would make him right. The OP had the right idea.
      - deleted 8y ago
        [deleted]
      - jackvalentine 8y ago
        What’s your point?
        cheez 8y ago
        The point is that it's not an ad hominem attack. The entire profession of economists on balance do not call anything correctly.
        jackvalentine 8y ago
        It is an argument from ad hominem. Or are economists wrong even when they say something you'd agree with?
- tinus_hn 8y ago
  If interest rises, sellers still want the same high prices for their house. Buyers won’t be able to afford them though so the houses will remain on the market for a lot longer.

ataturk 8y ago

I don't really believe anyone cares. It's Fall, people drop prices to sell before the holiday season. It could just be a normal thing that happens every year just like fewer houses sell in December because of Christmas. People don't move after Labor Day if they have school-age kids because it's so hectic once school starts. There is just normal stuff that goes on that is not any kind of indicator of impending doom. I am sitting on a $100K down payment awaiting a market correction, but I won't wait forever. It's hard to just have that money in brokered CDs, but that's where it is for now. 2008 was the big correction, it could be 20 years before we get another one.

jackcosgrove 8y ago

In theory, yes. In practice, no. https://www.calculatedriskblog.com/2013/06/house-prices-and-mortgage-rates.html https://www.calculatedriskblog.com/2013/06/house-prices-and-... "There’s no strong correlation between interest rates and home prices,” said Douglas Duncan, chief economist at Fannie Mae.

YZF 8y ago
I would say looking at those graphs that the interest rates going down from ~1982 look pretty correlated to the real house prices going up till ~2008. Especially for the post 1999 or so period. Then we had the bubble, then we had a crisis from a slight raise of rates. House prices move really slowly. You also probably want to look at real rates rather than nominal rates, for some of the period rates were high because inflation was also high. If interest rates keep heading up it's a good bet we're setting up for a repeat of that last crisis. Let's hope the banks are better prepared and have loaned money to less questionable people. It would also be instructive to see the shorter term rates, not everyone finances for 30 years. So I would say in theory and in practice interest rates have major impact on house prices. We would not have the bubble without the low interest rates as people wouldn't not be able to finance the purchase of those houses at those prices.
pyoung 8y ago
The house-price-to-income ratio has been historically high these last 1-2 decades, which will result in interest rates playing a bigger role in prices than they have in the past. Especially in the hotter coastal markets where affordability is a major issue. Part of this is structural as well, as most banks have strict debt-to-income ratios for their mortgages, so if interest rates go up, either incomes need to rise or prices need to come down to maintain the same level of demand.
Erlich_Bachman 8y ago
> hief economist at Fannie Mae. So the same company that lied through their teeth during the 2008 crisis and buildup to it, to give the banks ability to package junk loans as AAA CDOs? The one that had to be bailed out by the taxpayer eventually? Sure, let's listen to them, they sound like a trustworthy source.
- jackvalentine 8y ago
  He wasn't working there at the time - only started in 2008 post subprime crisis. Please don't argue ad hominem, if you have an issue with the statement then make your objection directly.
  - cheez 8y ago
    Taleb calls these people IYIs: intellectual yet idiot. There is nothing exceptional about THIS economist that would make him right. The OP had the right idea.
    - deleted 8y ago
      [deleted]
    - jackvalentine 8y ago
      What’s your point?
      - cheez 8y ago
        The point is that it's not an ad hominem attack. The entire profession of economists on balance do not call anything correctly.
        jackvalentine 8y ago
        It is an argument from ad hominem. Or are economists wrong even when they say something you'd agree with?
tinus_hn 8y ago
If interest rises, sellers still want the same high prices for their house. Buyers won’t be able to afford them though so the houses will remain on the market for a lot longer.