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We'll find out over the next 6-12 months. At some point, a lot of home buyers started shopping by payment without regard to total price. With interest rates nea

We'll find out over the next 6-12 months. At some point, a lot of home buyers started shopping by payment without regard to total price. With interest rates near their lowest in anyone's lifetimes that was workable. With interest rates rising, as buyers who haven't locked in lower rates begin looking at the current payments on offer, they will have to look at lower priced homes or drop out of the market. If this boom has been driven primarily by buyers flush with cash, foreign or domestic, then prices should remain high. Payments are largely irrelevant to cash buyers. Any buyer using debt will be forced into lowering their ceiling of properties they can afford. Home prices should then fall.

AYBABTME 5y ago
Home prices will fall if rentals fall, otherwise no one will want to sell and low market supply will keep prices where they care. But with rising interest rates, sustained demand for rental can be expected.
conductr 5y ago
The concept of the cash buyer is a bit of a farse as well. What usually takes place is a cash offer. They just need to proof of funds to do this. But then, they get financing to close. Nobody in their right mind is putting that sum of cash in real estate when they could borrow at 2% or whatever it was before the recent run up. The mortgage interest even has favorable tax treatment so it’s effectively much less. Oh and the actual cash can also grow tax deferred. I really don’t understand why you’d actually put a large sum into a house when interest rates were as low as they were.
- djbusby 5y ago
  Only if you had lots (lots!) of excess cash. That is, folk who are diversifying a big portfolio (ie: a 500k home is less than 20% of your total book)
- deleted 5y ago
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- deleted 5y ago
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- digitaltrees 5y ago
  Actually there a lot on business owners that can’t get mortgages because they don’t don’t have stable income reported on a w2. It can often be easier to buy cash and refinance than try to get a purchase mortgage
- tempnow987 5y ago
  Not true at all. If you are self employed getting underwritten can be a nightmare. We had savings galore but they wouldn't count it for a variety of reasons (withdrawn from biz account in last 90 days, biz account showed slight decrease because of covid), then calcs with old place and new together are hard. Sometimes if you just leverage equity in old place you will be moving from + hard money + savings, you can do a cash offer, then sell off old place (we had a preemptive offer 4 days in well over asking - bay area). Now you only have to be underwritten for one property (before selling old property they included both in calculations which made it hard). We got a 3% rate, then used that to settle up everything back to the way it was. California also have firms like Reali (https://reali.com/how-to-guide-cash-offer/ https://reali.com/how-to-guide-cash-offer/) that do a cash offer on new place, then you sell old place and buy from them. This might be unique to the insanity of the CA market in last 2 years. I think it is cooling down thankfully?
- deleted 5y ago
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- WA 5y ago
  Because for some people, it’s not about maximizing financial returns, but to have only their name in the deed and not the bank. Zero hassling with banks is freedom.
- closeparen 5y ago
  The ultimate endpoints of personal wealth are… home equity itself (down payments) and cash flow (retirement). There are also major purchases like college but compared to housing they’re pretty small. A fancy private education costs just 10% ($250k) of a decent 3BR in a walkable neighborhood ($2.5m). It seems like home equity is actually a pretty safe and efficient form of cash flow. Even with a cheap mortgage, the payments I need to make each year are about 5% of the principal, which is of course more than the standard 3-4% safe withdrawal rate for investment. The mortgage interest deduction is relevant, but the mortgage is also the reason I would need to realize so much taxable income in the first place. There are no taxes on imputed rent or home equity. Living in a paid off home, you can appear to the income tax system and even some means-tested programs (those that consider income not wealth) as a pauper. Because housing so dwarfs all other expenses, it is not clear to me why growing my principal at the expense of housing-sized cash flow would be a good tradeoff.
HWR_14 5y ago
> . At some point, a lot of home buyers started shopping by payment without regard to total price. At a N-year fixed interest rate, it's smarter to shop by payment without regard to total price. All the more if you can avoid a large downpayment. After all, that's what matters, right?
nly 5y ago
> At some point, a lot of home buyers started shopping by payment without regard to total price Isn't this how everyone has always shopped for housing? House prices are just a Present Value calculation. For example, if you can afford $3,000/mo over the next 25 years and you have a copy of Excel or OpenOffice calc handy: Affordable house price at a 5% mortgage rate: =PV(0.05/12,25*12,-3000,0) => $513K + [your down payment] Affordable house price at a 2.5% mortgage rate: =PV(0.025/12,25*12,-3000,0) => $668K (30% higher) + [your down payment] Atm, here in the UK interest rates are basically back to where they were in late 2019, but housing is still priced 20% higher. This is due to the chronic lack of housing stock and shifting buying patterns
- TapWaterBandit 5y ago
  The interest rate hasn't even gotten to 1% yet and these things take time to filter through to the market. And it is worth pointing out that as you can see from the link below the UK has had rates at less than 1% since the GFC. https://www.propertyinvestmentproject.co.uk/property-statistics/uk-interest-rate-history-graph/ https://www.propertyinvestmentproject.co.uk/property-statist... I have no idea where interest rates are going to end up however I wouldn't assume that the relevant reference point is late 2019 to now.
  - nly 5y ago
    Sure, we've had sub 1% zero rates since 2009, but over that 13 years the cost of housing has tripled. Even going to 2% over a couple of years could be devastating to home equity when people are so leveraged.

AYBABTME 5y ago

Home prices will fall if rentals fall, otherwise no one will want to sell and low market supply will keep prices where they care. But with rising interest rates, sustained demand for rental can be expected.

conductr 5y ago

The concept of the cash buyer is a bit of a farse as well. What usually takes place is a cash offer. They just need to proof of funds to do this. But then, they get financing to close. Nobody in their right mind is putting that sum of cash in real estate when they could borrow at 2% or whatever it was before the recent run up. The mortgage interest even has favorable tax treatment so it’s effectively much less. Oh and the actual cash can also grow tax deferred. I really don’t understand why you’d actually put a large sum into a house when interest rates were as low as they were.

djbusby 5y ago
Only if you had lots (lots!) of excess cash. That is, folk who are diversifying a big portfolio (ie: a 500k home is less than 20% of your total book)
deleted 5y ago
[deleted]
deleted 5y ago
[deleted]
digitaltrees 5y ago
Actually there a lot on business owners that can’t get mortgages because they don’t don’t have stable income reported on a w2. It can often be easier to buy cash and refinance than try to get a purchase mortgage
tempnow987 5y ago
Not true at all. If you are self employed getting underwritten can be a nightmare. We had savings galore but they wouldn't count it for a variety of reasons (withdrawn from biz account in last 90 days, biz account showed slight decrease because of covid), then calcs with old place and new together are hard. Sometimes if you just leverage equity in old place you will be moving from + hard money + savings, you can do a cash offer, then sell off old place (we had a preemptive offer 4 days in well over asking - bay area). Now you only have to be underwritten for one property (before selling old property they included both in calculations which made it hard). We got a 3% rate, then used that to settle up everything back to the way it was. California also have firms like Reali (https://reali.com/how-to-guide-cash-offer/ https://reali.com/how-to-guide-cash-offer/) that do a cash offer on new place, then you sell old place and buy from them. This might be unique to the insanity of the CA market in last 2 years. I think it is cooling down thankfully?
deleted 5y ago
[deleted]
WA 5y ago
Because for some people, it’s not about maximizing financial returns, but to have only their name in the deed and not the bank. Zero hassling with banks is freedom.
closeparen 5y ago
The ultimate endpoints of personal wealth are… home equity itself (down payments) and cash flow (retirement). There are also major purchases like college but compared to housing they’re pretty small. A fancy private education costs just 10% ($250k) of a decent 3BR in a walkable neighborhood ($2.5m). It seems like home equity is actually a pretty safe and efficient form of cash flow. Even with a cheap mortgage, the payments I need to make each year are about 5% of the principal, which is of course more than the standard 3-4% safe withdrawal rate for investment. The mortgage interest deduction is relevant, but the mortgage is also the reason I would need to realize so much taxable income in the first place. There are no taxes on imputed rent or home equity. Living in a paid off home, you can appear to the income tax system and even some means-tested programs (those that consider income not wealth) as a pauper. Because housing so dwarfs all other expenses, it is not clear to me why growing my principal at the expense of housing-sized cash flow would be a good tradeoff.

HWR_14 5y ago

> . At some point, a lot of home buyers started shopping by payment without regard to total price. At a N-year fixed interest rate, it's smarter to shop by payment without regard to total price. All the more if you can avoid a large downpayment. After all, that's what matters, right?

nly 5y ago

> At some point, a lot of home buyers started shopping by payment without regard to total price Isn't this how everyone has always shopped for housing? House prices are just a Present Value calculation. For example, if you can afford $3,000/mo over the next 25 years and you have a copy of Excel or OpenOffice calc handy: Affordable house price at a 5% mortgage rate: =PV(0.05/12,25*12,-3000,0) => $513K + [your down payment] Affordable house price at a 2.5% mortgage rate: =PV(0.025/12,25*12,-3000,0) => $668K (30% higher) + [your down payment] Atm, here in the UK interest rates are basically back to where they were in late 2019, but housing is still priced 20% higher. This is due to the chronic lack of housing stock and shifting buying patterns

TapWaterBandit 5y ago
The interest rate hasn't even gotten to 1% yet and these things take time to filter through to the market. And it is worth pointing out that as you can see from the link below the UK has had rates at less than 1% since the GFC. https://www.propertyinvestmentproject.co.uk/property-statistics/uk-interest-rate-history-graph/ https://www.propertyinvestmentproject.co.uk/property-statist... I have no idea where interest rates are going to end up however I wouldn't assume that the relevant reference point is late 2019 to now.
- nly 5y ago
  Sure, we've had sub 1% zero rates since 2009, but over that 13 years the cost of housing has tripled. Even going to 2% over a couple of years could be devastating to home equity when people are so leveraged.