4 ms·

The risk of a housing bubble bursting should be a function of the number of recent owners who can’t afford a rate hike and are forced to sell in a hurry. Is th

by psadri 5y ago

The risk of a housing bubble bursting should be a function of the number of recent owners who can’t afford a rate hike and are forced to sell in a hurry. Is this metric tracked somewhere?

frankbreetz 5y ago
aren't recent owners locked into a monthly payment for the next 15/30 years? People don't really get ARMs anymore. A rate hike would only affect prospective buyers.
- xxpor 5y ago
  That's only true in the US. In nearly every other country you have ARMs or worse. In Canada, my understanding is the typical mortgage is done on a 30 year amortization, but the loan is due in 5 years with a balloon payment. You have to reapply for a new loan for the next 5. If you're denied, you're screwed.
  - sofixa 5y ago
    In most EU countries, including those discussed in the article, mortgage rates are fixed.
    - xxpor 5y ago
      I think there's some confusion about the meaning of fixed. In Germany, rates are fixed for a period of time for a lot of mortgages. That would be considered an adjustable rate mortgage in the US. Fixed rate in the US means it's fixed at loan origination for the entire life of the loan. https://www.fitchratings.com/research/structured-finance/covered-bonds/long-fixed-rate-periods-mitigate-german-mortgage-rate-rise-14-06-2021 https://www.fitchratings.com/research/structured-finance/cov... Edit, just found this: https://www.iamexpat.de/housing/german-mortgages/types-mortgages-germany https://www.iamexpat.de/housing/german-mortgages/types-mortg... Annuitätendarlehen is indeed the same as a US fixed rate.
skrbjc 5y ago
In the US that isn't an issue as most mortgages are fixed rate for 30 years. Once you lock in a low rate when you buy or refinance, you keep that until you sell the house. My understanding in 2008 was that many people did adjustable rate mortgages (ARM) and then couldn't afford the rate hikes and defaulted. Since then everyone is afraid of getting into an ARM.
btilly 5y ago
Most owners are on fixed rate mortgages, and therefore do not experience rate hikes as interest rates change. They only care about the market if they try to sell, try to refinance, or it impacts their jobs. If there is a crash and they didn't lose their jobs, they may wind up under water. Meaning that they can't afford to move. But they still don't experience rate hikes. The minority of owners on ARMs do experience interest rate risk. But the fact of that risk is exactly why consumers prefer the 30 year fixed mortgage.

by psadri 5y ago

The risk of a housing bubble bursting should be a function of the number of recent owners who can’t afford a rate hike and are forced to sell in a hurry. Is this metric tracked somewhere?

frankbreetz 5y ago

aren't recent owners locked into a monthly payment for the next 15/30 years? People don't really get ARMs anymore. A rate hike would only affect prospective buyers.

xxpor 5y ago
That's only true in the US. In nearly every other country you have ARMs or worse. In Canada, my understanding is the typical mortgage is done on a 30 year amortization, but the loan is due in 5 years with a balloon payment. You have to reapply for a new loan for the next 5. If you're denied, you're screwed.
- sofixa 5y ago
  In most EU countries, including those discussed in the article, mortgage rates are fixed.
  - xxpor 5y ago
    I think there's some confusion about the meaning of fixed. In Germany, rates are fixed for a period of time for a lot of mortgages. That would be considered an adjustable rate mortgage in the US. Fixed rate in the US means it's fixed at loan origination for the entire life of the loan. https://www.fitchratings.com/research/structured-finance/covered-bonds/long-fixed-rate-periods-mitigate-german-mortgage-rate-rise-14-06-2021 https://www.fitchratings.com/research/structured-finance/cov... Edit, just found this: https://www.iamexpat.de/housing/german-mortgages/types-mortgages-germany https://www.iamexpat.de/housing/german-mortgages/types-mortg... Annuitätendarlehen is indeed the same as a US fixed rate.

skrbjc 5y ago

In the US that isn't an issue as most mortgages are fixed rate for 30 years. Once you lock in a low rate when you buy or refinance, you keep that until you sell the house. My understanding in 2008 was that many people did adjustable rate mortgages (ARM) and then couldn't afford the rate hikes and defaulted. Since then everyone is afraid of getting into an ARM.

btilly 5y ago

Most owners are on fixed rate mortgages, and therefore do not experience rate hikes as interest rates change. They only care about the market if they try to sell, try to refinance, or it impacts their jobs. If there is a crash and they didn't lose their jobs, they may wind up under water. Meaning that they can't afford to move. But they still don't experience rate hikes. The minority of owners on ARMs do experience interest rate risk. But the fact of that risk is exactly why consumers prefer the 30 year fixed mortgage.