4 ms·

> As a buyer I might be inclined to wait for the pandemic to pass and for prices to revert somewhat to the mean. The opposite force (motivating you to buy now)

> As a buyer I might be inclined to wait for the pandemic to pass and for prices to revert somewhat to the mean. The opposite force (motivating you to buy now) is that interest rates are very low, and that will probably change in the future.

gruez 6y ago
>The opposite force (motivating you to buy now) is that interest rates are very low, and that will probably change in the future. It's low for you, but also low for everyone else. Low interest rates push purchase prices higher because people care about monthly payments, not the final price. Overall it's a wash and you don't gain/lose for buying in a low/high interest rate environment.
- dcolkitt 6y ago
  Nearly half of home sales are to cash buyers, who at least theoretically aren’t sensitive to mortgage rates. https://www.appraisalinstitute.org/Nearly50PercentofHomeSalesareAllcashDeals/ https://www.appraisalinstitute.org/Nearly50PercentofHomeSale...
  - hirundo 6y ago
    The half that are sensitive to mortgage rates bid up prices for both halves when rates are low.
    - asdff 6y ago
      I feel like its the cash buyer who is dictating these sale prices, no?
  - refurb 6y ago
    Cash buyer often means just waiving financing contingencies, not having actual cash.
- rsj_hn 6y ago
  This is the correct take. Low interest rates means house prices are high now, and they will fall when interest rates climb, giving you capital losses. Much better to buy when interest rates are high, as rates will fall in the future and house prices will increase, giving you capital gains. In both cases, you will pay the same amount for the same house in terms of monthly payments, as households are payment constrained, and they don't particularly care what percentage of their monthly payment goes to pay for principle and what percentage pays for interest. They max out what they can afford in terms of the total monthly payment, and thus houses prices go up and down in the opposite direction of interest rates. But be careful, even though it is much better to buy when rates are high, that doesn't mean that waiting for rates to go up is a good strategy, as rates may not go up for twenty years, or even a hundred years - you don't know. But certainly a low interest rate environment is a terrible time to buy a house, even if you have to suck it up and buy anyway.
  - ryandrake 6y ago
    But when will rates be high? Rates have been consistently falling since 1981...for the last 40 years! They have been under 5% for the last 10 years. No sign of any upward pressure at all.
    - rsj_hn 6y ago
      I would answer that question by asking how much lower do you think rates will go? And how long do you think the current IR will last? Rates were rising from about 1951 (when the Fed first gained independence) to about 1980. The've been falling from the mid 80s until the present. Whatever happens, everything comes to an end, and the current regime is a bit long in the tooth already. Bottom line, rates will change when there is a financial regime change due to the current system no longer working. I think it's obvious that what we are doing now is unsustainable: running massive deficits, enormous capital account inflows, and dollar appreciation. In terms of what would be the breaking point, one can only speculate as to whether it is too much inflation, or too many defaults, etc. At some point, the snowballing side effects of our current policies will just stop working, at which point a new regime will be needed. I don't know when. For a big picture view, I recommend Sydney Homer's A History of Interest Rates. It's a great read and discusses long term interest rate regimes as well as various triggers that changed them. In terms of trying to time these regime changes, I wouldn't bother. What you can do is hedge a bit so that you are not financially ruined in case there is a regime change. I would not use the low IR regime we have now to massively go into long term variable rate debt, for example, or massively go into long term fixed rate debt if you can't handle a rate increase. So just be aware that rates will go up at some point, and make sure you can handle that before taking on a lot of leverage.
- sangnoir 6y ago
  > Overall it's a wash and you don't gain/lose for buying in a low/high interest rate environment. You can't paint with such a broad stroke without crunching numbers - I think the better, but less satisfying answer is "it depends". It depends on the specific market and pricing dynamics (past and future), as well as on the length of the mortgage term and how high interest will go in the future - which is hard to know beforehand. Further complicating this are objective factors such as flexibility (of renting), and how much you're willing to pay for it. Buying a house is huge time-sink: expect to screen hundreds of houses and actually viewing dozens of them. Then you have to put together an offer quickly. If you're unlucky, your offer may be tied to some other buyer and the seller may ask you to write a motivating essay on why they should sell you their house - which I find insulting and time-wasting. To GP: you need to write down actual figures and work it all out for best & worst cases - estimates are fine. When you are done, pick a path you are comfortable with.

gruez 6y ago

>The opposite force (motivating you to buy now) is that interest rates are very low, and that will probably change in the future. It's low for you, but also low for everyone else. Low interest rates push purchase prices higher because people care about monthly payments, not the final price. Overall it's a wash and you don't gain/lose for buying in a low/high interest rate environment.

dcolkitt 6y ago
Nearly half of home sales are to cash buyers, who at least theoretically aren’t sensitive to mortgage rates. https://www.appraisalinstitute.org/Nearly50PercentofHomeSalesareAllcashDeals/ https://www.appraisalinstitute.org/Nearly50PercentofHomeSale...
- hirundo 6y ago
  The half that are sensitive to mortgage rates bid up prices for both halves when rates are low.
  - asdff 6y ago
    I feel like its the cash buyer who is dictating these sale prices, no?
- refurb 6y ago
  Cash buyer often means just waiving financing contingencies, not having actual cash.
rsj_hn 6y ago
This is the correct take. Low interest rates means house prices are high now, and they will fall when interest rates climb, giving you capital losses. Much better to buy when interest rates are high, as rates will fall in the future and house prices will increase, giving you capital gains. In both cases, you will pay the same amount for the same house in terms of monthly payments, as households are payment constrained, and they don't particularly care what percentage of their monthly payment goes to pay for principle and what percentage pays for interest. They max out what they can afford in terms of the total monthly payment, and thus houses prices go up and down in the opposite direction of interest rates. But be careful, even though it is much better to buy when rates are high, that doesn't mean that waiting for rates to go up is a good strategy, as rates may not go up for twenty years, or even a hundred years - you don't know. But certainly a low interest rate environment is a terrible time to buy a house, even if you have to suck it up and buy anyway.
- ryandrake 6y ago
  But when will rates be high? Rates have been consistently falling since 1981...for the last 40 years! They have been under 5% for the last 10 years. No sign of any upward pressure at all.
  - rsj_hn 6y ago
    I would answer that question by asking how much lower do you think rates will go? And how long do you think the current IR will last? Rates were rising from about 1951 (when the Fed first gained independence) to about 1980. The've been falling from the mid 80s until the present. Whatever happens, everything comes to an end, and the current regime is a bit long in the tooth already. Bottom line, rates will change when there is a financial regime change due to the current system no longer working. I think it's obvious that what we are doing now is unsustainable: running massive deficits, enormous capital account inflows, and dollar appreciation. In terms of what would be the breaking point, one can only speculate as to whether it is too much inflation, or too many defaults, etc. At some point, the snowballing side effects of our current policies will just stop working, at which point a new regime will be needed. I don't know when. For a big picture view, I recommend Sydney Homer's A History of Interest Rates. It's a great read and discusses long term interest rate regimes as well as various triggers that changed them. In terms of trying to time these regime changes, I wouldn't bother. What you can do is hedge a bit so that you are not financially ruined in case there is a regime change. I would not use the low IR regime we have now to massively go into long term variable rate debt, for example, or massively go into long term fixed rate debt if you can't handle a rate increase. So just be aware that rates will go up at some point, and make sure you can handle that before taking on a lot of leverage.
sangnoir 6y ago
> Overall it's a wash and you don't gain/lose for buying in a low/high interest rate environment. You can't paint with such a broad stroke without crunching numbers - I think the better, but less satisfying answer is "it depends". It depends on the specific market and pricing dynamics (past and future), as well as on the length of the mortgage term and how high interest will go in the future - which is hard to know beforehand. Further complicating this are objective factors such as flexibility (of renting), and how much you're willing to pay for it. Buying a house is huge time-sink: expect to screen hundreds of houses and actually viewing dozens of them. Then you have to put together an offer quickly. If you're unlucky, your offer may be tied to some other buyer and the seller may ask you to write a motivating essay on why they should sell you their house - which I find insulting and time-wasting. To GP: you need to write down actual figures and work it all out for best & worst cases - estimates are fine. When you are done, pick a path you are comfortable with.