4 ms·

People who bought houses will be fine, since they secured low interest loans, and will hesitate to sell because won't get good interest on next loan. This will

People who bought houses will be fine, since they secured low interest loans, and will hesitate to sell because won't get good interest on next loan. This will cause low supply -> high prices -> people who didn't buy are very screwed: they will face high prices together with high interest.

rhexs 4y ago
It depends on a recession and how bad it is. Even if you're locked into a low mortgage, if you lose your job, can't pay, and due to rising interest rates are now underwater 500K on a mortgage, nothing good happens. Like it or not there's a lot of chaff to cut in software engineering. How many of these SaaS businesses can survive, and how many engineers bought nice homes with massive salaries that might go poof?
- riku_iki 4y ago
  > are now underwater 500K on a mortgage it will be very small fraction of homeowners: those who bought in in last 2-3 years. All others will be significantly over water, and may take equity loans instead of selling houses to preserve low mortgage interest rates.
  - tsunamifury 4y ago
    Eventually and all sellers and no buyers market will catch up with prices. Matter of how long it can be bridged. Every equity loan taken out against higher values will shorten that bridge.
    - riku_iki 4y ago
      And then homeowner will have strong incentive to move to smaller rental unit and rent his primary residence, or maybe he will be able to find job in this few years secured by equity loan. > Eventually Eventually maybe. FED gave 20T free money to current home owners in addition to existing tax incentives, how long it will take to chew through them? Maybe generation?
- Forgeties79 4y ago
  >due to rising interest rates I think most people are doing fixed rate loans in this economy, right? Genuinely asking. I think I might be misunderstanding this aspect of your point here.
datalopers 4y ago
You’re forgetting about the overpaid tech workers who are soon to be laid off, possibly underwater on their mortgages, and decide it’s time to downsize.
- riku_iki 4y ago
  There are amazon, google, msft and apple, with almost $1trln annual revenue combined, they will continue paying to a plenty of workers.
  - datalopers 4y ago
    Cool, I’ll let YC’s entire portfolio know there’s plenty of jobs at the big tech cos.
    - riku_iki 4y ago
      You are switching topics. The point is that there will be plenty of funds inflow to support housing market.
      - datalopers 4y ago
        Would you like to place a wager? I bet that the median home price in tech-centric metro areas (seattle, sf/bay, la, nyc) will decline by 10% or more in July 2023 versus July 2022.
        riku_iki 4y ago
        10% is like small correction comparing to previous increase, and doesn't offset mortgage rate increase.
        tjr225 4y ago
        For many in tech metros their homes could decrease in value by 25% or more from their current values and the home would still be worth more than they paid for. In any case they won’t want to sell for a mortgage that effectively costs the same over a 30 year loan with a higher interest rate.
rcpt 4y ago
Low interest rate doesn't mean low monthly payment
- riku_iki 4y ago
  It means monthly payments are lower than if person would sell and buy with higher interest. It is very strong incentive to not sell.
  - rcpt 4y ago
    But it also means that recent buyers might have stretched and won't be able to make payments. If stocks do badly or someone gets laid off they'll need to sell and downsize or rent
Forgeties79 4y ago
Totally anecdotal, but I know a couple who are renting out their house they highly and renting a place to live because the interest rate they secured (2.75%) means renters paid their mortgage and then some (about 40% on top), so they basically make like $200/mo to live somewhere else as renters pay for their home.
- Zenbit_UX 4y ago
  This doesn't make sense or you are omitting key information. If a homeowner rents their place for more than it costs them in mortgage + property taxes and makes $200 on top, that's fine and quite a nice deal. However you're suggesting they're also subsidizing their own rental and +$200. That only makes sense if they're renting well below their means or in a different market entirely while their home is in an ultra prime location. If not the renter of their home should simply have rented out the place the owners are living at a substantial discount.
  - Forgeties79 4y ago
    It makes plenty of sense, happy to explain. New Orleans has wild real estate. It’s not San Francisco but it’s way above the average income here and swings wildly from neighborhood to neighborhood. Home prices flip radically even just a few blocks over. We’re talking $400k->$800k if you move 5, maybe 6 blocks. Sometimes fewer than that - saw a near-turnkey place go for $500k and another for $900k 2 blocks from each other right by me about 3 or 4 years ago (obviously the latter was very nice new construction, but you get the point). They own in a solid neighborhood, one that was “up and coming” 5 years ago, and rent in an average one (it’s in a higher risk flood zone which factors in a ton). Irish Channel vs. midcity, if you know the area at all. They don’t have kids and see their rental as a place to sleep. It’s small, barely what I’d qualify as enough for two people. But it works for them so power to them I guess. Making out like bandits. I get why you’re skeptical but it’s not like I’m lying here. Not sure why I would? The whole point of this anecdote is to show how crazy these interest rates were.

rhexs 4y ago

It depends on a recession and how bad it is. Even if you're locked into a low mortgage, if you lose your job, can't pay, and due to rising interest rates are now underwater 500K on a mortgage, nothing good happens. Like it or not there's a lot of chaff to cut in software engineering. How many of these SaaS businesses can survive, and how many engineers bought nice homes with massive salaries that might go poof?

riku_iki 4y ago
> are now underwater 500K on a mortgage it will be very small fraction of homeowners: those who bought in in last 2-3 years. All others will be significantly over water, and may take equity loans instead of selling houses to preserve low mortgage interest rates.
- tsunamifury 4y ago
  Eventually and all sellers and no buyers market will catch up with prices. Matter of how long it can be bridged. Every equity loan taken out against higher values will shorten that bridge.
  - riku_iki 4y ago
    And then homeowner will have strong incentive to move to smaller rental unit and rent his primary residence, or maybe he will be able to find job in this few years secured by equity loan. > Eventually Eventually maybe. FED gave 20T free money to current home owners in addition to existing tax incentives, how long it will take to chew through them? Maybe generation?
Forgeties79 4y ago
>due to rising interest rates I think most people are doing fixed rate loans in this economy, right? Genuinely asking. I think I might be misunderstanding this aspect of your point here.

datalopers 4y ago

You’re forgetting about the overpaid tech workers who are soon to be laid off, possibly underwater on their mortgages, and decide it’s time to downsize.

riku_iki 4y ago
There are amazon, google, msft and apple, with almost $1trln annual revenue combined, they will continue paying to a plenty of workers.
- datalopers 4y ago
  Cool, I’ll let YC’s entire portfolio know there’s plenty of jobs at the big tech cos.
  - riku_iki 4y ago
    You are switching topics. The point is that there will be plenty of funds inflow to support housing market.
    - datalopers 4y ago
      Would you like to place a wager? I bet that the median home price in tech-centric metro areas (seattle, sf/bay, la, nyc) will decline by 10% or more in July 2023 versus July 2022.
      - riku_iki 4y ago
        10% is like small correction comparing to previous increase, and doesn't offset mortgage rate increase.
      - tjr225 4y ago
        For many in tech metros their homes could decrease in value by 25% or more from their current values and the home would still be worth more than they paid for. In any case they won’t want to sell for a mortgage that effectively costs the same over a 30 year loan with a higher interest rate.

rcpt 4y ago

Low interest rate doesn't mean low monthly payment

riku_iki 4y ago
It means monthly payments are lower than if person would sell and buy with higher interest. It is very strong incentive to not sell.
- rcpt 4y ago
  But it also means that recent buyers might have stretched and won't be able to make payments. If stocks do badly or someone gets laid off they'll need to sell and downsize or rent

Forgeties79 4y ago

Totally anecdotal, but I know a couple who are renting out their house they highly and renting a place to live because the interest rate they secured (2.75%) means renters paid their mortgage and then some (about 40% on top), so they basically make like $200/mo to live somewhere else as renters pay for their home.

Zenbit_UX 4y ago
This doesn't make sense or you are omitting key information. If a homeowner rents their place for more than it costs them in mortgage + property taxes and makes $200 on top, that's fine and quite a nice deal. However you're suggesting they're also subsidizing their own rental and +$200. That only makes sense if they're renting well below their means or in a different market entirely while their home is in an ultra prime location. If not the renter of their home should simply have rented out the place the owners are living at a substantial discount.
- Forgeties79 4y ago
  It makes plenty of sense, happy to explain. New Orleans has wild real estate. It’s not San Francisco but it’s way above the average income here and swings wildly from neighborhood to neighborhood. Home prices flip radically even just a few blocks over. We’re talking $400k->$800k if you move 5, maybe 6 blocks. Sometimes fewer than that - saw a near-turnkey place go for $500k and another for $900k 2 blocks from each other right by me about 3 or 4 years ago (obviously the latter was very nice new construction, but you get the point). They own in a solid neighborhood, one that was “up and coming” 5 years ago, and rent in an average one (it’s in a higher risk flood zone which factors in a ton). Irish Channel vs. midcity, if you know the area at all. They don’t have kids and see their rental as a place to sleep. It’s small, barely what I’d qualify as enough for two people. But it works for them so power to them I guess. Making out like bandits. I get why you’re skeptical but it’s not like I’m lying here. Not sure why I would? The whole point of this anecdote is to show how crazy these interest rates were.