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What's the argument for negative interest rates having any impact on house prices? I would think it would be mostly linear compared to 2%, 1%, 0%, -1%, etc...

What's the argument for negative interest rates having any impact on house prices? I would think it would be mostly linear compared to 2%, 1%, 0%, -1%, etc... For example - if I have a 20 year mortgage on a $240,000 house @ 0%, I have to pay $1,000/month. If the interest rate is -1% then I have to pay ~$900/month. I don't know if that extra $100/month really moves the market on home prices that much.

wrsh07 6y ago
I think at that point everyone should be incentivized to hold a mortgage At the very least that increases demand for housing dramatically
bluedevil2k 6y ago
People would be incentivized to buy the absolute most expensive home they qualify for, which isn’t always a good thing. Dove sorry is the key to investments.
- war1025 6y ago
  > Dove sorry is the key to investments. What does this mean? I am at a loss.
  - nostrademons 6y ago
    I assume it's an autocorrect from "diversity".
    - api 6y ago
      Mobile is the foot rub (autocorrect of "mobile is the future" I saw once).
- Robin_Message 6y ago
  I'm guessing "dove sorry" is diversity, but who knows!
JacobDotVI 6y ago
I think you need to look at it from monthly -> house price and not the other way around. If your budget / purchasing power is $1000 /m then your house budget is roughly as follows: $190,000 @ 5% interest $210,000 @ 4% interest $235,000 @ 3% interest $275,000 @ 2% interest $310,000 @ 1% interest [Note - not exact numbers; 30yr mortgage; mortgage calculator.org via guessing numbers until the monthly was close enough to $1k]
- betaby 6y ago
  That's _the_same_ house costs 190k if interest is 5% and 310k if interest is 1%. Supply is not flexible at all, especially in the desirable place. Basically hosing prices determined by the maximal mortgage amount, not the house property.
hordeallergy 6y ago
Psychology. Here in the UK the the lemming factor would kick in strongly - toilet paper, bicycles ... negative interest rate. The moment those words are uttered by the BBC you could expect the country to be covered with little puddles of excitement leading to the nearest bank. Some phrases trigger a threshold where reason loses strength - fomo? Panic?
nostrademons 6y ago
Once rates go negative people have an incentive to take out the biggest mortgage that they can, because they're making money on each. With negative rates the payments compound. If the interest rate is $900/month, you're paying off $1000/month in principal each month, and making $100/month in profit that is applied to the home equity. You can then go use that equity to take out another loan on the property, make $100/month in profit, repeat. Or go buy a different property with a different lender, if the bank starts getting suspicious. If you can't afford the increased payments...well, that's what a loan is for, particularly one that you're making a profit off. ;-)
- s1artibartfast 6y ago
  I don't think there is a single tipping point the way you think. The same is true now if you consider the other ways you can spend your capital. a -1% rate on a mortgage with 20% down payment is effetely a 4% annual return on investment. If you can make 10%/yr in the stock market. and your mortgage is 3%/yr you should be maxing out the loan already and putting your cash back into stocks to make the 7% difference, not another house, if mortgages are 0%, you are making 10%, If mortgages are -1% you are making 11%, ect The downsides to this strategy in a negative interest rate scenario are the same as they are today: If all your capital is locked up in down payments, you are missing out on stock gains entirely. If all your capital is in the market, you are vulnerable to bubbles and swings there.
  - nostrademons 6y ago
    The reason folks don't do this is in your last sentence: stocks are not risk-free, and you're vulnerable to market downturns. Or sometimes people do do this, and they get swept out of the market when a downturn happens. Same thing with bonds, mortgages, and loans: there's default risk. Taking out debt at a negative interest rate has no such default risk: since you borrowed the money in the first place, if you default the lender is out the principal, not you. (It's also worth noting that there are a few risk-free assets that offer yields higher than 0%: U.S. Treasuries, and U.S. savings accounts. And there is a predictable carry trade of firms borrowing at 0 in the EU, converting their Euros to dollars, and then depositing in the U.S. at > 0. The risk then becomes currency risk, the chance that the dollar will depreciate, which is also happening.)

wrsh07 6y ago

I think at that point everyone should be incentivized to hold a mortgage At the very least that increases demand for housing dramatically

bluedevil2k 6y ago

People would be incentivized to buy the absolute most expensive home they qualify for, which isn’t always a good thing. Dove sorry is the key to investments.

war1025 6y ago
> Dove sorry is the key to investments. What does this mean? I am at a loss.
- nostrademons 6y ago
  I assume it's an autocorrect from "diversity".
  - api 6y ago
    Mobile is the foot rub (autocorrect of "mobile is the future" I saw once).
Robin_Message 6y ago
I'm guessing "dove sorry" is diversity, but who knows!

JacobDotVI 6y ago

I think you need to look at it from monthly -> house price and not the other way around. If your budget / purchasing power is $1000 /m then your house budget is roughly as follows: $190,000 @ 5% interest $210,000 @ 4% interest $235,000 @ 3% interest $275,000 @ 2% interest $310,000 @ 1% interest [Note - not exact numbers; 30yr mortgage; mortgage calculator.org via guessing numbers until the monthly was close enough to $1k]

betaby 6y ago
That's _the_same_ house costs 190k if interest is 5% and 310k if interest is 1%. Supply is not flexible at all, especially in the desirable place. Basically hosing prices determined by the maximal mortgage amount, not the house property.

hordeallergy 6y ago

Psychology. Here in the UK the the lemming factor would kick in strongly - toilet paper, bicycles ... negative interest rate. The moment those words are uttered by the BBC you could expect the country to be covered with little puddles of excitement leading to the nearest bank. Some phrases trigger a threshold where reason loses strength - fomo? Panic?

nostrademons 6y ago

Once rates go negative people have an incentive to take out the biggest mortgage that they can, because they're making money on each. With negative rates the payments compound. If the interest rate is $900/month, you're paying off $1000/month in principal each month, and making $100/month in profit that is applied to the home equity. You can then go use that equity to take out another loan on the property, make $100/month in profit, repeat. Or go buy a different property with a different lender, if the bank starts getting suspicious. If you can't afford the increased payments...well, that's what a loan is for, particularly one that you're making a profit off. ;-)

s1artibartfast 6y ago
I don't think there is a single tipping point the way you think. The same is true now if you consider the other ways you can spend your capital. a -1% rate on a mortgage with 20% down payment is effetely a 4% annual return on investment. If you can make 10%/yr in the stock market. and your mortgage is 3%/yr you should be maxing out the loan already and putting your cash back into stocks to make the 7% difference, not another house, if mortgages are 0%, you are making 10%, If mortgages are -1% you are making 11%, ect The downsides to this strategy in a negative interest rate scenario are the same as they are today: If all your capital is locked up in down payments, you are missing out on stock gains entirely. If all your capital is in the market, you are vulnerable to bubbles and swings there.
- nostrademons 6y ago
  The reason folks don't do this is in your last sentence: stocks are not risk-free, and you're vulnerable to market downturns. Or sometimes people do do this, and they get swept out of the market when a downturn happens. Same thing with bonds, mortgages, and loans: there's default risk. Taking out debt at a negative interest rate has no such default risk: since you borrowed the money in the first place, if you default the lender is out the principal, not you. (It's also worth noting that there are a few risk-free assets that offer yields higher than 0%: U.S. Treasuries, and U.S. savings accounts. And there is a predictable carry trade of firms borrowing at 0 in the EU, converting their Euros to dollars, and then depositing in the U.S. at > 0. The risk then becomes currency risk, the chance that the dollar will depreciate, which is also happening.)