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You can already see that housing prices are inversely correlated with interest rates. Yes, this will reduce the sale price of houses in hard-to-afford areas, bu

You can already see that housing prices are inversely correlated with interest rates. Yes, this will reduce the sale price of houses in hard-to-afford areas, but the change on how affordable these houses are will not change as much as you might think. E.g. $100k, 4%, 30y -> $477/mo, but $65k, 8%, 30y -> $477/mo. This isn’t the full picture, obviously, but in this hypothetical example, both scenarios are more or less equally affordable. (Again, this example is just illustrative. I know people who bought in the 1980s and then refinanced in the 1990s, which ended up being a pretty sweet deal.)

runako 7y ago
Yes! Also, long-term owners who bought while rates were high stood to benefit greatly as interest rates came down and home prices rose accordingly. (In your example, your $65k @ 8% house becomes a $100k house where you've refinanced down to 4%.)
api 7y ago
The down payment is a function of the sale price, and that makes housing completely unthinkable to a lot of people in high price areas. They could afford the payment. Sometimes the payment would be lower than rent. Going under 20% down results in poor loan terms and extra expenses like mortgage insurance that ruin the economics. So high sticker prices on homes really do make them unaffordable to first time buyers who don't have family help or a very high income.
- autokad 7y ago
  mortgage insurance does suck, but it didn't ruin the economics for me, but I was lucky. When I bought with an FHA, if you got down to 20% by year 5, you could get rid of MIP. Now the rules are stupid, you are stuck with mortgage insurance for the life of the loan regardless, unless refi. That's just wrong
whyhow 7y ago
>You can already see that housing prices are inversely correlated with interest rates. I do not think this is true. Everything I have seen shows that mortgage rates and house prices are positively correlated. Probably because they are both determined by the overall state of the economy. When the economy is good, prices rise and interest rates rise. When the economy is bad, both fall.
spamizbad 7y ago
Part of what drove housing price escalation was supply constraints. Housing starts tanked during the early 90s and climbed back out much slower. Lower interest rates opened up housing affordability to more people, but supply constraints kept prices high. So those who already had home equity were able to sell for a profit and buy bigger. New entrants weren't so lucky.

runako 7y ago

Yes! Also, long-term owners who bought while rates were high stood to benefit greatly as interest rates came down and home prices rose accordingly. (In your example, your $65k @ 8% house becomes a $100k house where you've refinanced down to 4%.)

api 7y ago

The down payment is a function of the sale price, and that makes housing completely unthinkable to a lot of people in high price areas. They could afford the payment. Sometimes the payment would be lower than rent. Going under 20% down results in poor loan terms and extra expenses like mortgage insurance that ruin the economics. So high sticker prices on homes really do make them unaffordable to first time buyers who don't have family help or a very high income.

autokad 7y ago
mortgage insurance does suck, but it didn't ruin the economics for me, but I was lucky. When I bought with an FHA, if you got down to 20% by year 5, you could get rid of MIP. Now the rules are stupid, you are stuck with mortgage insurance for the life of the loan regardless, unless refi. That's just wrong

whyhow 7y ago

>You can already see that housing prices are inversely correlated with interest rates. I do not think this is true. Everything I have seen shows that mortgage rates and house prices are positively correlated. Probably because they are both determined by the overall state of the economy. When the economy is good, prices rise and interest rates rise. When the economy is bad, both fall.

spamizbad 7y ago

Part of what drove housing price escalation was supply constraints. Housing starts tanked during the early 90s and climbed back out much slower. Lower interest rates opened up housing affordability to more people, but supply constraints kept prices high. So those who already had home equity were able to sell for a profit and buy bigger. New entrants weren't so lucky.