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"The median monthly payment of a 30-year mortgage is up 56% year-over-year" And this number was calculated before rates went even higher last week. Source: ht

"The median monthly payment of a 30-year mortgage is up 56% year-over-year" And this number was calculated before rates went even higher last week. Source: https://www.calculatedriskblog.com/2022/06/30-year-mortgage-rates-increase-to-585.html https://www.calculatedriskblog.com/2022/06/30-year-mortgage-...

arcticbull 4y ago
Yeah but is that super relevant? Mortgage monthly payments overwhelmingly aren't up because, obviously, they're usually fixed for a 30 year period. This rate affects new buyers, and only temporarily as of course, they can refinance into lower rates in the future. Mortgage rates may be up compared to 6 months ago, but they're back where they were in 2018 when I bought my condo. People were screaming 'housing bubble' back then too. Even that is misleading because... Keep in mind that with an 8% inflation rate, a 5.85% interest rate on a 30-year fixed is a -2.15% real interest rate. Once you take into account mortgage interest tax deductions, the real interest rate is -4.5%. This is dramatically lower than last time we saw 5.85% interest rates (2018) when we had a 1-2% inflation rate. That's a real interest rate of +3.85%. Once you take into account mortgage interest tax deductions, the real interest rate was +1.5%.
- wintermutestwin 4y ago
  >Keep in mind that with an 8% inflation rate, a 5.85% interest rate on a 30-year fixed is a -2.15% real interest rate. You are leaving out (as so many do): Taxes, Insurance and Maintenance. For example, where I live, those add up to a minimum of 3%. On top of all that, you need to factor in your personal stability - what's the risk that your career or partnership could intervene in your plans and force you to sell < 7-10 years out? If that happens, you are eating closing costs and potentially being forced to sell at a bottom out moment in house prices due to interest rate instability.
  - arcticbull 4y ago
    That’s fine but not relevant to my point. Those things also all existed last time nominal rates were at this level. My point is real rates are dramatically lower now than last time. This is going to keep demand high, maybe not from the same individual buyer as before but there’s a good reason we see institutional gobbling up all this real estate. The market doesn’t differentiate between institutional and retail buyers when a house goes up for sale. However all those property taxes and HOA fees are tax deductible for institutional buyers. I don’t think that’s good of course - and I’m not advocating people run out and buy a house either - I’m just saying, there’s a ton of factors that make “housing market collapse imminent” more of a pipe dream than a sure thing. How much did housing go down in SF during COVID? Charts say zero, and that’s during the biggest exodus of people actually living there in recent memory.
    - wintermutestwin 4y ago
      You raise a very good point about institutional buyers. I haven't done enough research, but I wasn't able to find a good way to invest in a REIT that was focused at single family in the right areas. It would be great way to hedge against the risks they pose to the market for retail investors.
      - arcticbull 4y ago
        Huh, that's a really interesting idea. I hadn't thought about that!
- BadCookie 4y ago
  Market prices are set at the margin by people who are buying and selling today, so yes, the monthly payments of new buyers absolutely matter. 2018 purchase prices were much lower than now, so your argument about rates isn’t convincing me. It’s the combination of obscene prices and moderate rates that is the issue. Obscene prices only made a bit of sense when rates were pushing under 3%. I’m a homeowner, so it’s not in my interest to see prices fall, but I also don’t see why anybody would buy my house today given how high the payment would be. I would not be able to rent it out for anywhere near that number. So the situation appears very unstable to me. I don’t expect 8% inflation to persist for 30 years. Do you? You’re right that if we average 8% inflation over the next 30 years, folks should buy the biggest house they can get approved for as long as rates are below 8%. But that’s taking a pretty big risk. Inflation has never run that hot for that long in the U.S. before. The Fed targets 2% inflation and has spent most of the last 14 years falling short of their target. But we are in a new financial regime now, and nobody really knows what’s going to happen for sure.
  - arcticbull 4y ago
    I don’t expect inflation to remain high - but nor do I expect interest rates to remain high. The spread between the real dollar and nominal dollar rates right now is super negative and I suspect even if individuals don’t buy, institutional will. To your point, who knows what will happen?

arcticbull 4y ago

Yeah but is that super relevant? Mortgage monthly payments overwhelmingly aren't up because, obviously, they're usually fixed for a 30 year period. This rate affects new buyers, and only temporarily as of course, they can refinance into lower rates in the future. Mortgage rates may be up compared to 6 months ago, but they're back where they were in 2018 when I bought my condo. People were screaming 'housing bubble' back then too. Even that is misleading because... Keep in mind that with an 8% inflation rate, a 5.85% interest rate on a 30-year fixed is a -2.15% real interest rate. Once you take into account mortgage interest tax deductions, the real interest rate is -4.5%. This is dramatically lower than last time we saw 5.85% interest rates (2018) when we had a 1-2% inflation rate. That's a real interest rate of +3.85%. Once you take into account mortgage interest tax deductions, the real interest rate was +1.5%.

wintermutestwin 4y ago
>Keep in mind that with an 8% inflation rate, a 5.85% interest rate on a 30-year fixed is a -2.15% real interest rate. You are leaving out (as so many do): Taxes, Insurance and Maintenance. For example, where I live, those add up to a minimum of 3%. On top of all that, you need to factor in your personal stability - what's the risk that your career or partnership could intervene in your plans and force you to sell < 7-10 years out? If that happens, you are eating closing costs and potentially being forced to sell at a bottom out moment in house prices due to interest rate instability.
- arcticbull 4y ago
  That’s fine but not relevant to my point. Those things also all existed last time nominal rates were at this level. My point is real rates are dramatically lower now than last time. This is going to keep demand high, maybe not from the same individual buyer as before but there’s a good reason we see institutional gobbling up all this real estate. The market doesn’t differentiate between institutional and retail buyers when a house goes up for sale. However all those property taxes and HOA fees are tax deductible for institutional buyers. I don’t think that’s good of course - and I’m not advocating people run out and buy a house either - I’m just saying, there’s a ton of factors that make “housing market collapse imminent” more of a pipe dream than a sure thing. How much did housing go down in SF during COVID? Charts say zero, and that’s during the biggest exodus of people actually living there in recent memory.
  - wintermutestwin 4y ago
    You raise a very good point about institutional buyers. I haven't done enough research, but I wasn't able to find a good way to invest in a REIT that was focused at single family in the right areas. It would be great way to hedge against the risks they pose to the market for retail investors.
    - arcticbull 4y ago
      Huh, that's a really interesting idea. I hadn't thought about that!
BadCookie 4y ago
Market prices are set at the margin by people who are buying and selling today, so yes, the monthly payments of new buyers absolutely matter. 2018 purchase prices were much lower than now, so your argument about rates isn’t convincing me. It’s the combination of obscene prices and moderate rates that is the issue. Obscene prices only made a bit of sense when rates were pushing under 3%. I’m a homeowner, so it’s not in my interest to see prices fall, but I also don’t see why anybody would buy my house today given how high the payment would be. I would not be able to rent it out for anywhere near that number. So the situation appears very unstable to me. I don’t expect 8% inflation to persist for 30 years. Do you? You’re right that if we average 8% inflation over the next 30 years, folks should buy the biggest house they can get approved for as long as rates are below 8%. But that’s taking a pretty big risk. Inflation has never run that hot for that long in the U.S. before. The Fed targets 2% inflation and has spent most of the last 14 years falling short of their target. But we are in a new financial regime now, and nobody really knows what’s going to happen for sure.
- arcticbull 4y ago
  I don’t expect inflation to remain high - but nor do I expect interest rates to remain high. The spread between the real dollar and nominal dollar rates right now is super negative and I suspect even if individuals don’t buy, institutional will. To your point, who knows what will happen?