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As someone who doesn't own a home but would like to in the future, reading this kind of stuff is making me sick.
by frgtpsswrdlame 4y ago
As someone who doesn't own a home but would like to in the future, reading this kind of stuff is making me sick.
- bombcar 4y agoRates skyrocketing can be great if you are going to be buying - because prices will usually drop to keep total monthly payments about the same. And even if you have to buy at 18% interest like in the 80s, you can refinance if rates drop.
- deleted 4y ago[deleted]
- Blackthorn 4y agoSeems like that is belated by real estate being purchased in cash by investment firms, driving prices further up.
- dragonwriter 4y ago> Seems like that is belated by real estate being purchased in cash by investment firms, driving prices further up. I wonder how much that is already contributing to the pullback in listings that is driving price increases; I suspect investment firms turn over property a lot less (at least, as individual sales) than owner-occupied.
- deleted 4y ago[deleted]
- ZoomerCretin 4y agoPeople are cashing out of expensive markets and moving to cheaper markets, paying all cash. There will be no price drop.
- SV_BubbleTime 4y agoAmong other reasons I’ve been thinking the same. I have two coworkers looking to buy. They both keep “waiting for the crash”. But I’ve tried to explain to them, they’re getting beat out on every place they look at with over-asking cash offers. If there “is a crash” they will be at the same place they are now. They need new construction to improve availability, or they need a scenario with there is mass unemployment that doesn’t effect their jobs. IDK anything. But I’m not sure I see how they get into a house.
- 01100011 4y agoWhat happens when buyers disappear for the homes in the expensive markets? The prices drop, and the cash available to buy in a cheaper market dries up. You can argue that people just will stay put, but that assumes they have the ability to service the debt on their home in the expensive area. It doesn't take many forced sales in an illiquid market to drive down prices. It can also drive a panic rush for the exit as folks think they're missing the last chance to cash out of their expensive home. I saw a couple of open houses today in the south SF Bay. Ghost towns. I can't say if that's representative of the overall market, but I think the pipeline is already draining.
- lmm 4y ago> You can argue that people just will stay put, but that assumes they have the ability to service the debt on their home in the expensive area. It doesn't take many forced sales in an illiquid market to drive down prices. It can also drive a panic rush for the exit as folks think they're missing the last chance to cash out of their expensive home. > I saw a couple of open houses today in the south SF Bay. Ghost towns. I can't say if that's representative of the overall market, but I think the pipeline is already draining. The houses sit empty because the owner would rather maintain a (fictious at this point) valuation than realise the loss. That panic sell dynamic you mentioned doesn't seem to happen in housing, and foreclosure sales etc. can always be dismissed as unrepresentative.
- 01100011 4y ago
- mr_cyborg 4y agoWe are locked in to new construction that keeps getting delayed. Every couple weeks our payments go up as interest rates rise and there’s nothing we can do. It’s brutal.
- toast0 4y agoThere's got to be some out, although it might not be pleasant. What happens if you don't secure financing? What happens if the developer never finishes?
- bombcar 4y agoUsually you have a pretty high rate construction or bridge loan that you plan on refinancing into a normal home loan when there’s a house to backstop it. But you can’t get that backstopped loan until the house exists. Likely you could pull out and lose a deposit (and a good lawyer might even get that back because of delay) but you’re still without a house.
- toast0 4y agoWell, a pretty high rate from 6 months ago might be a reasonable rate today?
- mr_cyborg 4y agoThe builder we used builds to spec and then you buy the house minus the initial deposit in full. He’s not a fan of doing customer-originated/owned construction loans, which is fair, I believe a good number of builders in our area operate the same way.
- usrn 4y agoPeople bitch about crypto all the time but I never hear anything about these contracts with adjustable rate loans. Those should be illegal; they lay people out. With crypto you only lose the money you put in.
- mr_cyborg 4y agoWe are waiting for the contract addendum with final pricing. It may still make financial sense to go through with everything, once we have all that. It’s just annoying that in this situation, our house costs are fixed against a particular point in time, but interest rates continue to rise.
- modeless 4y agoHmm. So if a house cost $2m at 3% interest last year, then interest spikes to 18%, the house should drop to $550,000? Yeah I really don't see prices dropping 70%, sorry. As much as I wish they would, as someone who wants to buy their first house.
- danielmarkbruce 4y agoI'd take the bet that it would get close(sub $1 mill) all else equal. In some areas houses dropped over 50% during the financial crises.
- deleted 4y ago[deleted]
- modeless 4y agoAround here they barely dropped at all and for barely more than a year.
- danielmarkbruce 4y agoOut of interest, where?
- BirdieNZ 4y agoIf interest rates go to 18%, you bet the house would drop to $550,000. I'm expecting house prices in my country to drop at least 30% in the next couple of years and I'm only expecting interest rates to get to around 10%, 18% would destroy the housing market.
- modeless 4y agoWell I hope I'm wrong and you're right, because I expect interest rates to keep rising and I could really use a 70% drop in house prices.
- deleted 4y ago[deleted]
- gnopgnip 4y agoHome prices are set by the market, not just by affordability. If home prices dropped 50%, very very few homeowners with rates in the ~5% range would be willing to sell even if they could afford to do so without bankruptcy.
- WillPostForFood 4y agoLike the previous housing busts, when prices drop 50%, there is so much general distress that there will be foreclosures everywhere, distressed sales, bankruptcies, and general economic misery. Sitting on a 5% mortgage on an underwater is ok, if you have a job, if you believe the market is coming back, if your neighborhood isn't descending into chaos.
- rcpt 4y agoHome prices dropping 50% puts us in 2018. Why do you think we'll all be knee deep in skeletons clubbing each other to death if that happens?
- usrn 4y agoBecause the prices have been so high all of people's wealth is tied up in their homes. It won't happen though unless there's already widespread violence.
- foogazi 4y ago> Because the prices have been so high all of people's wealth is tied up in their homes. Housing has been so high for 3 years All of people’s wealth was tied up in housing before then too - if they sell they’ll just get less for it now
- refurb 4y agoWhen home price drop 50% usually the economy is in the toilet too, which means jobs are lost, which means people can't afford their mortgages. Hell, if you're far enough underwater, youd be smart to declare bankruptcy rather than pay an $800,000 mortgage on a $500,000 home.
- _ah 4y agoYou might think so, but historically that doesn't seem to be the case. Prices rise as interest rates drop, but prices are sticky on the way down. This article is old but still relevant: https://www.theatlantic.com/business/archive/2011/07/how-rising-interest-rates-affect-home-prices/241504/ https://www.theatlantic.com/business/archive/2011/07/how-ris...
- foogazi 4y agoThe opening line from 2011 seems prescient: > Mortgage interest rates will rise. We can't be sure exactly when rates will begin to climb or by how much, but we know what's coming. 11 years later it finally happened
- ryanSrich 4y agoThat might be the case if supply was even close to demand, but at least in most parts of the US the demand outweighs the supply by several orders of magnitude. I don't see prices going down. They might go flat, but they'll never be lower than they are right now.
- refurb 4y agoLet me guess, you never lived through 2008? A friend of a friend just sold his condo in a Bay Area at a loss. Prices have dropped from their highs.
- hiram112 4y agoYour friend bought and sold a condo in the same year or so? Maybe I'm interpreting this wrong. Cause the transaction costs alone are about 10% on a home sale, so it's not something you want to treat like switching apartments every year when they jack up the rent 10%, even if the general rental market doesn't call for such an increase (they know most people won't want to deal with moving, deposits, etc).
- hiram112 4y agoYour friend bought and sold a condo in the same year or so? Maybe I'm interpreting this wrong. Cause the transaction costs alone are about 10% on a home sale, so it's not something you want to treat like switching apartments every year when they jack up the rent 10%.
- refurb 4y agoBought in 2019, now worth ~5% less, not even counting transactions costs. Condos took a big hit in SF during Covid. Starting to recover, but now with increasing interest rates, it may be a while.
- hadlock 4y agoDepends on the neighborhood. Arguably, bay area prices peaked in October of 2015, and have been flat or down slightly. If you convert housing prices to $/square foot, it hit and has been flirting with the "magic psychological price point" of $1000/sq ft price for a long time. There are many exceptions to the rule (of course) but you can see prices racing up to a city-wide average of $1000/sq ft and then flattening out quickly if you look at a graph.
- usrn 4y agoAt least here the rates going up now means renting is cheaper than owning and the price have barely moved.
- toomuchtodo 4y agoStockpile cash for your down payment, rising rates drive down asset prices. (not investing advice)
- krupan 4y agoIf you are buying a home to live in, just make sure you can stick with it for 5 years at least, and you will probably be fine. And the more years the better. As someone else said, you'll be able to refinance if/when rates go down, and the value of the home will go up if the fed and IRS doesn't change things majorly.
- dragonwriter 4y ago> As someone else said, you'll be able to refinance if/when rates go down Not necessarily, especially if valuations go down, as well, and especially if the economic conditions leading to lower rates/valuation—low rates being, after all, a monetary stimulus policy—also adversely effect your own earning potential.
- linguae 4y agoUnfortunately when you’ve been priced out of housing (the pandemic and the recent rise in interest rates priced me out of anything within 2 hours from Silicon Valley), there’s not much you can do other than relocate or find a way to increase income/savings. Housing in Bay Area exurbs like Hollister and Tracy has gone up by over 30% since the pandemic started. I’m currently relying on the latter (I don’t want to move for career and personal reasons), trying to save in the face of high inflation while also trying to level up my career and one day get promotions.
- danielmarkbruce 4y agoDon't worry toooooo much. The total cost of housing moves around less than changes in rates and house prices would suggest. Over time prices, interest rates and supply tend to move such that people spend, give or take, about the same % of their income on housing. Right now it sucks in the US because not enough houses were built for a number of years after the financial crises - then that got exacerbated during covid. It's never been easy to buy a house - looking at prices from a generation ago makes it seem easy, but they were facing high teen mortgage rates.
- fartcannon 4y agoWe're about to face teen mortgage rates with million+ homes, aren't we?
- ryanSrich 4y agoAbsolutely. The reason for that is for every person who needs to take out a mortgage for that $1m home, there are 3 buyers that are willing to pay cash, and like 20% over asking price. What many in this thread fail to realize is that there's a larger dynamic to housing right now than anything related to prices and rates. It's purely supply and demand. The demand is just too high for the prices to come down. Having 20% interest rates will curb some of that demand no doubt, but it won't clear it out completely. That means a few dips here and there, but generally, I don't see demand for housing decreasing enough for prices to go down.
- cjbgkagh 4y ago20% interest rates for the US is apocalyptic.
- danielmarkbruce 4y agohttps://www.census.gov/construction/nrc/pdf/newresconst.pdf https://www.census.gov/construction/nrc/pdf/newresconst.pdf Housing starts are trending up. It will take a few years, but supply is coming.
- 4y ago
- 01100011 4y agoIt's great if you're a cash buyer. Of course it will be difficult to raise that cash if the economy dives and/or real wages(after inflation) keep sinking. But, if you have the cash, you may be rewarded with some good deals on housing. You're generally better off paying a higher rate and less for the actual property since you can always refinance down the line but you can't renegotiate what you paid for a property.
- jseliger 4y agoWhat should really make you sick is not interest-rate information, but housing restrictions that drive up the cost of housing: https://www.worksinprogress.co/issue/the-housing-theory-of-everything/ https://www.worksinprogress.co/issue/the-housing-theory-of-e.... That's the true villain.
- smabie 4y agoJust buy in cash
- usrn 4y ago>Just let them eat cake