4 ms·

What's going to give first? Interest rates? House Prices? I was on the market to buy a place. First time home owner jitters, but interest rates started to ri

by leekh 4y ago

What's going to give first? Interest rates? House Prices? I was on the market to buy a place. First time home owner jitters, but interest rates started to rise fast. Buying power dropped so much that I'm dropped out. At these rates, I really need the price to drop by 20%-ish. I'm sitting on cash and it feels like shit. I wonder how other people feel.

fatnoah 4y ago
My personal opinion, based on what happened in 2008 in my area, is that the exact impact will be local. I think in some traditionally desirable places, prices will level out or only decrease slightly as interest rates rise. Lower inventory will help keep these prices up as increased competition keeps prices inflated despite higher interest rates. In other places, I think prices will fall as rates rise, since overall affordability will go down, but there won't be as much buyer competition to prop prices up. At some point, the dam will break and people who've been sitting on the sidelines and accumulating large down payments will start bidding prices up again, causing more sellers to list, which in turn will get more buyers involved.
posix_compliant 4y ago
Same boat. I did some investigation into historical interest rates vs. housing prices, and I learned that there's really only a weak correlation between housing prices and interest rates (and funnily enough, it's a positive correlation).
- wbsss4412 4y ago
  There’s too many confounding factors to drawn conclusions based on regressing interest rates vs home prices. Interest rates are strongly correlated with government policy, which is crafted to respond to overall growth and inflation, which drive home prices.
wbsss4412 4y ago
Interest rates are highly sensitive to markets that have fairly tight feedback loops. Home prices are set by relatively few transactions taking place at any one time in a close geographic area. There’s going to be a good amount of lag between higher rates prices actually dropping, especially given that the trend was increasing prices. We’ll likely see a leveling off first, then a degree of fall. It’s hard to speculate about how much the prices will fall, ultimately homeowners make up such a large proportion of the population that they have a lot of leverage as a voting block, and government is responsive to their desire to protect their investment. Given the degree of run up we saw during, and even prior to, COVID, I’d estimate that there is a lot of room for prices to come down, but a lot of that drop is going to be driven by policy, not “free” markets.
rhinoceraptor 4y ago
I think it depends on if real estate is still being devoured by investment groups. And during high inflation, it doesn't seem like they're going to stop parking their money in homes any time soon. And since they can buy with cash, interest rates don't matter to them.
- noobermin 4y ago
  How much influence do investment groups really have on the housing bubble?
  - dominotw 4y ago
    No one really knows . I've seen figures from 10% all the way to 70% in some markets.
  - jmoak3 4y ago
    Something like 15% of all home sales over the past year were institutional buyers according to a report by the national association of realtors. [0] It was more dramatic for some counties - Austin’s for example saw 41% of homes sold to institutional buyers. As rates rise and a recession looms, time horizon before profitability shrinks and ability to pay rent falls into question, which puts these regions at risk of a crash in price as these parties may have to liquidate. Tread lightly! [0] https://cdn.nar.realtor/sites/default/files/documents/2022-impact-of-institutional-buyers-on-home-sales-and-single-family-rentals-05-12-2022.pdf https://cdn.nar.realtor/sites/default/files/documents/2022-i... EDIT: 20% to 15%
  - EricE 4y ago
    Someone has to be buying up all those houses in CA that the people fleeing the state are still selling at inflated prices. If the net population of a state has dropped enough for them to loose at least one seat in the house of representatives, but houses are still selling for high prices than logically it's not people buying up those houses.
    - lupire 4y ago
sentirist 4y ago
The FRED 30 year fixed average puts things in perspective. https://fred.stlouisfed.org/series/MORTGAGE30US https://fred.stlouisfed.org/series/MORTGAGE30US We have had a historic move up in rates but that is coming out of COVID with rates at levels that don't even make sense to lend at for 30 years with out the Fed. It would seem hard to believe housing prices are not overvalued with that artificially low rate regime but it is also hard to see housing prices crash in a massive inflationary environment. I would think we have a small pull back and then a flat line as time catches up with price. Of course, real estate price is always local so generalizing to the whole country doesn't mean so much. Canada I think is more interesting than the US with all the adjustable rate mortgages. Obviously, that is not going to end well when those rates adjust as an adjustable rate mortgage is basically a bet on what is happening, not happening.
- lupire 4y ago
  Housing isn't overvalued. Housing is in shortage, so it priced at the maximum of affordability. Either you pay the landlord or previous owner (low interest) or you pay a bank (high interest), but either way you pay all you can.
FooBarBizBazz 4y ago
I feel like Mr. Biswas. There's no winning.
UncleOxidant 4y ago
Arguably the 1980-81 era is a bit of an outlier, but perhaps instructive due to some of the similarities. The Fed under Volcker caused mortgage rates to rise to close to 20%. This was done to quell inflation that had proven persistent during the 70s. Back in '08 I recall looking at home sales data for my state (Oregon) during that era and there were quarters where the average selling price went down almost 20%. Of course, that's average selling price - it doesn't necessarily translate to home prices falling 20%, volume also fell (also consider that Oregon was very timber dependent then and there was suddenly a lot less home building going on). I suspect we'll see mortgage rates this time around hit 8% which really isn't an unusual rate historically, but given current prices that kind of rate will cause disruption. Bottom line: wait for rates to go higher - prices will fall. You can refinance the mortgage after rates go back down some, but I wouldn't expect to see 3% 30 year mortgages for a long time.
- whiplash451 4y ago
  Timing the market is risky. Nothing guarantees that things will pan out the way you describe + your reader might be throwing money down a rental drain unless they buy.
turtlebits 4y ago
I'm glad the housing market is slowing down. I'm not in a rush to buy (not willing to do super short review dates after listing) and not willing to get into a bidding war.
- ok_dad 4y ago
  I’m glad it’s slowing too, but I’m 40 and at this point I’ll probably never outright own a home unless I inherit one. This sucks.
  - deleted 4y ago
    [deleted]

by leekh 4y ago

fatnoah 4y ago

My personal opinion, based on what happened in 2008 in my area, is that the exact impact will be local. I think in some traditionally desirable places, prices will level out or only decrease slightly as interest rates rise. Lower inventory will help keep these prices up as increased competition keeps prices inflated despite higher interest rates. In other places, I think prices will fall as rates rise, since overall affordability will go down, but there won't be as much buyer competition to prop prices up. At some point, the dam will break and people who've been sitting on the sidelines and accumulating large down payments will start bidding prices up again, causing more sellers to list, which in turn will get more buyers involved.

posix_compliant 4y ago

Same boat. I did some investigation into historical interest rates vs. housing prices, and I learned that there's really only a weak correlation between housing prices and interest rates (and funnily enough, it's a positive correlation).

wbsss4412 4y ago
There’s too many confounding factors to drawn conclusions based on regressing interest rates vs home prices. Interest rates are strongly correlated with government policy, which is crafted to respond to overall growth and inflation, which drive home prices.

wbsss4412 4y ago

Interest rates are highly sensitive to markets that have fairly tight feedback loops. Home prices are set by relatively few transactions taking place at any one time in a close geographic area. There’s going to be a good amount of lag between higher rates prices actually dropping, especially given that the trend was increasing prices. We’ll likely see a leveling off first, then a degree of fall. It’s hard to speculate about how much the prices will fall, ultimately homeowners make up such a large proportion of the population that they have a lot of leverage as a voting block, and government is responsive to their desire to protect their investment. Given the degree of run up we saw during, and even prior to, COVID, I’d estimate that there is a lot of room for prices to come down, but a lot of that drop is going to be driven by policy, not “free” markets.

rhinoceraptor 4y ago

I think it depends on if real estate is still being devoured by investment groups. And during high inflation, it doesn't seem like they're going to stop parking their money in homes any time soon. And since they can buy with cash, interest rates don't matter to them.

noobermin 4y ago
How much influence do investment groups really have on the housing bubble?
- dominotw 4y ago
  No one really knows . I've seen figures from 10% all the way to 70% in some markets.
- jmoak3 4y ago
  Something like 15% of all home sales over the past year were institutional buyers according to a report by the national association of realtors. [0] It was more dramatic for some counties - Austin’s for example saw 41% of homes sold to institutional buyers. As rates rise and a recession looms, time horizon before profitability shrinks and ability to pay rent falls into question, which puts these regions at risk of a crash in price as these parties may have to liquidate. Tread lightly! [0] https://cdn.nar.realtor/sites/default/files/documents/2022-impact-of-institutional-buyers-on-home-sales-and-single-family-rentals-05-12-2022.pdf https://cdn.nar.realtor/sites/default/files/documents/2022-i... EDIT: 20% to 15%
- EricE 4y ago
  Someone has to be buying up all those houses in CA that the people fleeing the state are still selling at inflated prices. If the net population of a state has dropped enough for them to loose at least one seat in the house of representatives, but houses are still selling for high prices than logically it's not people buying up those houses.
  - lupire 4y ago

sentirist 4y ago

The FRED 30 year fixed average puts things in perspective. https://fred.stlouisfed.org/series/MORTGAGE30US https://fred.stlouisfed.org/series/MORTGAGE30US We have had a historic move up in rates but that is coming out of COVID with rates at levels that don't even make sense to lend at for 30 years with out the Fed. It would seem hard to believe housing prices are not overvalued with that artificially low rate regime but it is also hard to see housing prices crash in a massive inflationary environment. I would think we have a small pull back and then a flat line as time catches up with price. Of course, real estate price is always local so generalizing to the whole country doesn't mean so much. Canada I think is more interesting than the US with all the adjustable rate mortgages. Obviously, that is not going to end well when those rates adjust as an adjustable rate mortgage is basically a bet on what is happening, not happening.

lupire 4y ago
Housing isn't overvalued. Housing is in shortage, so it priced at the maximum of affordability. Either you pay the landlord or previous owner (low interest) or you pay a bank (high interest), but either way you pay all you can.

FooBarBizBazz 4y ago

I feel like Mr. Biswas. There's no winning.

UncleOxidant 4y ago

Arguably the 1980-81 era is a bit of an outlier, but perhaps instructive due to some of the similarities. The Fed under Volcker caused mortgage rates to rise to close to 20%. This was done to quell inflation that had proven persistent during the 70s. Back in '08 I recall looking at home sales data for my state (Oregon) during that era and there were quarters where the average selling price went down almost 20%. Of course, that's average selling price - it doesn't necessarily translate to home prices falling 20%, volume also fell (also consider that Oregon was very timber dependent then and there was suddenly a lot less home building going on). I suspect we'll see mortgage rates this time around hit 8% which really isn't an unusual rate historically, but given current prices that kind of rate will cause disruption. Bottom line: wait for rates to go higher - prices will fall. You can refinance the mortgage after rates go back down some, but I wouldn't expect to see 3% 30 year mortgages for a long time.

whiplash451 4y ago
Timing the market is risky. Nothing guarantees that things will pan out the way you describe + your reader might be throwing money down a rental drain unless they buy.

turtlebits 4y ago

I'm glad the housing market is slowing down. I'm not in a rush to buy (not willing to do super short review dates after listing) and not willing to get into a bidding war.

ok_dad 4y ago
I’m glad it’s slowing too, but I’m 40 and at this point I’ll probably never outright own a home unless I inherit one. This sucks.
- deleted 4y ago
  [deleted]