16 ms·

Mortgage Rates Jump Above 6%, Putting Pressure on Housing Market

107 points by uptown 4y ago

ra7 4y ago
I'm fighting the urge to time the market and put an offer for a house I like in the next few days. The high mortgage rates are putting my monthly payment estimates in uncomfortable territory, but I also know rates are unlikely to go down for a year at least, especially not to historical lows of 2-3% we've seen recently. Only saving grace is home prices are falling in my local market (Austin, TX) and builders are willing to negotiate more for inventory homes. But it's not falling fast enough proportional to the rate hikes. I guess this is working exactly as designed for the Fed, but it sucks.
- bombcar 4y ago
  If you get what you want at current rates and they go up - got it just in time! And if rates go down enough, refinance!
- linguae 4y ago
  Same here. I've been on the housing market for the past year, though my local market is the Monterey Bay Area, with parts of the Bay Area and the Central Valley as backup options. Interest rates were considerably lower last year, but the market was an absolute frenzy, with homes receiving multiple offers at prices considerably above asking. At a budget of only $550,000, it was highly discouraging; there were few listings that met my price range to begin with, and all of them ended up selling well above asking. Once the 2022 interest rate hikes began, it's been less frentic; not only are there fewer above-asking bids, but homes are sitting on the market longer, and many sellers have made modest 5-10% cuts in their asking prices. However, a mortgage on a $525,000 home at 6% interest is still larger than a mortgage on a $550,000 home at 3.5%. Even though 6% interest is still low by historical standards, today's home prices in my areas of interest are the highest they've ever been. However, I'm still interested in purchasing now because I don't believe prices are going to drop substantially in my area. There needs to be more housing in order to meet the demand, but Santa Cruz and Monterey counties (less so San Benito County due to the growth of Hollister) have historically not been keen on large-scale development. Thus, supply hasn't increased very much, while demand has been increasing, especially when the pandemic started when the prospect of working from home made commuting to Silicon Valley less of an issue.
- alistairSH 4y ago
  End of the season in a different market so YMMV, but the markets I follow (Reston, VA and some of the towns along the Blue Ridge Mountains) have flatlined in the last two months. Prices are steady or falling and I'm seeing houses that went under contract in early August return to the market. People definitely seem unsure. Funny, I remember the early 80s, when rates were around 18%. The house my parents bought back then was, in part, selected because the existing mortgage was transferable and at a lower rate (~9%). The last decade of rates below 5% are an anomaly. Average over the last 40 years is somewhere in the 5-6% range with many periods well above.
  - exhilaration 4y ago
    because the existing mortgage was transferable I've never heard of transferable mortgages! I'm guessing they've been phased out due to changing regulations?
    - dwater 4y ago
      They mostly phased out in the 80's because banks wanted to make more money from fees and rising interest rates. The main reason a buyer would choose to assume a mortgage is because rates have risen, which means the bank would get more money if the buyer got a new loan instead.
    - awinder 4y ago
      Current FHA mortgages are assumable
- smaddox 4y ago
  You can always refinance when the fed inevitably reverses course.
- whitej125 4y ago
  Mortgage rates will change more quickly than housing prices. Mortgage rates are a function of the Fed, Treasury Rates and tons of banks/lenders across the nation. National scale influenced, sure, in part by national demand for mortgages. You local housing prices are more of a function of local supply/demand which is partially disconnected from the national scene. So yes, national mortgage rates going high will knock out some potential buyers. At the same time (at least in my area)... rates have gone up... local inventory of available homes has gone down (people just choosing to not sell) and thus housing prices are remaining mostly flat even as national mortgage rates rise.
  - ra7 4y ago
    In my local market, prices are definitely dropping [1] and available inventory is up to pre-pandemic levels [2]. But even with price cuts, it's still only at Jan-Feb 2022 levels (I think prices peaked around April-May). It's the lag between rates rising and that being reflected in prices that makes the timing less ideal. [1] https://fred.stlouisfed.org/series/MEDLISPRI12420 https://fred.stlouisfed.org/series/MEDLISPRI12420 [2] https://fred.stlouisfed.org/series/ACTLISCOU12420 https://fred.stlouisfed.org/series/ACTLISCOU12420
- deelowe 4y ago
  At a macro level, mortgage rates impact the market. At a local level, things may be very different. In my area, 2008/09 impacted the price point I was in by about 5-10%. There was too much growth in the area for the downturn to affect prices that much. We did see volume go down, but prices overall stayed relatively the same.
- AnimalMuppet 4y ago
  > The high mortgage rates are putting my monthly payment estimates in uncomfortable territory... And they are doing the same for everyone else who needs a mortgage to be able to buy. So, what's going to happen is that in a month or so, house sellers are going to realize that they can't get the same price now that they could six months ago. Offer a price that makes your monthly payments comfortable, even if it's less than the seller is asking. If everybody else is in the same boat, and nobody else offers more, then the seller has a decision to make - your offer, or nothing. It can take a while for them to decide to bite that bullet, though. Note well: I'm not a realtor, nor a real estate investment guru. This is just the way I think this plays out.
  - ra7 4y ago
    > Offer a price that makes your monthly payments comfortable, even if it's less than the seller is asking. Exactly what my plan is. At least it's encouraging that sellers are willing to negotiate now.
- daniel-cussen 4y ago
  Willing to negotiate more. Hah. You know I've seen both sides, was getting an introduction to a construction job from a Central American, guy was long-term very solid, told me yeah wages are $20 but they charge $75 dollars per hour to the buyer. Dude willing to negotiate. All about making things more expensive and charging cost-plus. Dude like hospitals $120 for a box of tissue paper. Negreation. Very negreated market. Everybody squeezing, everybody trying to corner, everybody seeking to conspire, everybody out to fuck you. Less so as you go inland, but to an extent still. Just considered easy money. You and me, anybody who hasn't bought in yet gets negreated. Anything but supply and demand. Dude that's why startups attempt to take on this kind of markets and always fail, that medicine and education, always nosedive, why? Highly negreated. Negreado, treated like a source of free labor, ie like negros especially bozales (direct from Africa) were exploited in Chile. It's supposed to be real estate agents just make shitloads of free money. Like three phone calls boom 60000 USD. No effort. Just sleazing. Connections. Access. So it can't be disrupted, really. The whole industry is set up as an economic army prepared for disruption with...with anything. Everything on the table. You think the entrepreneurs before 2006 couldn't see inefficiencies? Couldn't say hey I can do it better? Didn't have the internet? There were phone lines, there was fax, sneakernet, there was tons, and there was internet going back to the 80's. A professor told me of a spreadsheet business online in the 80's. Dude, the reason disruption can't happen is because everybody backstabs it right away. The industry is that. Also sometimes build houses, also sometimes prescribe some pills, also sometimes actually hand out sheepskins. But the intent is to deny, not supply. Deny and demand.
prottog 4y ago
I bought a house recently so I'm theoretically on the losing side of any drop in home prices resulting from this, but I still support it. I'm of the opinion that the government putting a ceiling on the price of money by controlling interest rates leads to all sorts of market dysfunctions, not the least of which is asset inflation of the kind we've seen recently.
- deleted 4y ago
  [deleted]
- mech987 4y ago
  I think we're seeing the culmination of a long-term trend of declining interest rates. Interest rates have been declining for 400 years, and have finally reached the point where they bottom out at 0. (or even negative interest rates, in European bank policy!). The bad part of this I think, is that valuations of long-term cash flows start becoming more and more sensitive to rates. The difference between a 2.75% mortgage and a 3.75% mortgage is bigger, relatively, than the difference between a 3.75% mortgage and a 4.75% mortgage; because people buy the largest, longest mortgage they can afford, small changes in small interest rates result in large changes in the monthly payment. I feel like this ends up making the whole housing market more volatile.
  - onlyrealcuzzo 4y ago
    This exactly! If you can assume long-term stable interest rates and have access to a 30-year fixed mortgage - the difference between a 2% mortgage and a 1% mortgage is the same as the difference between a 12% mortgage and a 6% mortgage. Every percentage points that central banks artificially reduce interests by exponentially distorts the markets. A 0% mortgage with a 1% property tax - theoretically - costs you -2% (x 5 for leverage per year). On a million dollar house - you'd get paid $100k per year to live there. The effects of this policy have been a moral hazard unseen before, and if it ever has to end, we're in for wild times.
    - andsoitis 4y ago
      > A 0% mortgage with a 1% property tax - theoretically - costs you -2% (x 5 for leverage per year). How did you calculate that?
kory 4y ago
It’s really a challenge. Do I love my 5br house in Seattle that I pay only $3200 a month for? Yes. Low rates and low prices made that possible for a brief moment in 2020. Will we be here forever? No… I don’t think I want to raise kids in the city. Everything is densifying and that’s not for me. But as rates continue to rise, the financial cost of moving seems increasingly large. We might be stuck here for the entire mortgage term if prices drop below 2020 prices, which is feasible if rates continue to rise for the next few years. Payment a few thousand a month higher, purchase price a few hundred k lower. I could always rent it out. I really do want to preserve this old house and it would need to go the right tenant that takes care of it, likely for a below market rent in exchange. However, given how absolutely unfriendly rental laws are in Seattle and how little choice I’ll really have in a tenant as a result, I’m very averse to that. Maybe I’ll just leave it empty once enough time passes for the payment to be inflated away to a negligible amount. I suspect inventory will stay low for these reasons. People either can’t move, don’t have an incentive to rent out their place, or will rent and not sell to avoid catastrophic losses.
- bombcar 4y ago
  Prices have rarely fallen even in bad times. It may happen again, but don’t let a loss prevent you from doing what you want. And likely renting is a hell you don’t want to get into unless you can basically rent to family. Landlords are not loved.
  - kory 4y ago
    Even if I do retain a profit when selling, we’re going to be trading down to a worse house. Payments for the same house now based on the Redfin estimate and current interest rates are more than double. Given how bad the tech sector is doing now that the real world is back post lockdowns, I’m not comfortable taking on that much more of a payment.
    - bombcar 4y ago
      Yeah, but don’t forget to take in all variables (total cost of ownership as it were) - the mortgage is one factor, taxes, schools, commute all play into it. Moving to a more expensive monthly payment in a school district where you don’t need to send kids to private school to get a good education can save thousands of dollars, for example. But I know how it is. I had an underwater house in CA for 10+ years before I could refinance.
spicyusername 4y ago
Bringing house prices down either means increasing the supply or decreasing demand. The FED only has a demand-side lever, and "decreasing demand" is exactly equivalent to "reducing affordability". It would be nice to see more attention paid to increasing housing supply, but that is a much more complex problem, so I'm not surprised that we see less emphasis on it.
- prottog 4y ago
  The difficult part about increasing supply is that it usually involves dialing back state intervention, and there's very little incentive in the political system for anyone to do that.
  - deleted 4y ago
    [deleted]
- Justsignedup 4y ago
  There's also increasing a lot of supply. Without building. The biggest problem in the country is that investment capital is swooping in any buying any valuable property up and re-selling it for a lot more OR renting it out for a lot. Because investment is just buying everything for cash, they don't really care. We need a massive tax on investment property, something that'll require the house to become completely unaffordable to re-sell, so investing will have negative returns due to taxation. Then suddenly a ton of houses will fly back on the market because investors will be trying to dump inventory. ALSO property taxes can help: If you live in a house, your property tax is identical to today. If you don't, your property tax is say 10x'd. Being a real-estate investor won't be very lucrative. Meanwhile this won't affect regular homebuyers since they won't have this tax.
  - mgraczyk 4y ago
    On the face of it, this makes no sense. Vacancy rates are incredibly low everywhere in the US, and what you're describing would push prices down as much as up.
bombcar 4y ago
Mortgage rates hit 2% below inflation. Hmmm. Somebody’s doing the subsidizing.
- crooked-v 4y ago
  Inflation numbers are an average, not a baseline.
  - hackernewds 4y ago
    as are mortgage rates
- dragontamer 4y ago
  Today's rate of inflation means very little to a 30-year mortgage. The rate of inflation 5, 10, 15+ years from now is what matters. But if you think inflation really will be that high for so long, I got some TIPS to sell you...
  - mucle6 4y ago
    But can't people refinance? Is the bank offering lower % interest that is subsidized by people who don't refinance?
    - bombcar 4y ago
      The mortgage rate is basically set by whoever is buying the bonds they are packaged as. So it floats a certain points higher than treasuries, usually.
    - dragontamer 4y ago
      I have a 2.3% mortgage. Do you think I'm going to refinance today? No. The bank is stuck with 2.3% from me for the next 15 years. Its a bad deal for them, and a great deal for me. As long as interest rates go up, there's no refinancing to occur. Its financially the wrong move for the property owners.
rr888 4y ago
Technically 8% inflation and 6% interest rates should be a great time to load up on debt and buy hard assets. Affordability seems to drive everything though which is why I've been wrong for 20 years about this. Who knows what'll happen next.
- xuki 4y ago
  I'll let you guess why (hard) asset prices have increased so much for the past 20 year.
  - rr888 4y ago
    Thanks I figured it out while my friends (who bought a lot of property) got rich and I waited for the crash. That's the problem right markets can stay irrational until you're dead.
    - s1artibartfast 4y ago
      I spent 10 years in the same boat. Sometimes it is hard to distinguish a irrational market from one you simply dont like. Hosing prices have always been higher than I would like them to be. However, there has been no shortage of people willing to pay those high market prices. At the end of the day, I had to ask if it was the market that was irrational or just me.
      - rr888 4y ago
        Yeah my problems compounded because I grew up in a small unloved city where property was always cheap to big cities with expensive real estate that seemed crazy but maybe makes sense.
- esoterica 4y ago
  You're locking in 6% for 30 years, inflation is going to vary.
  - 4y ago
francisofascii 4y ago
It is just me or is 6% a reasonable rate for a 30 year, fixed rate mortgage?
- crooked-v 4y ago
  It would be, except a lot of people were only able to get into the current overstrained housing market at all because of miniscule interest rates.
  - staringback 4y ago
    You've got it the wrong way, it is overstrained because interest rates were so minuscule and so many people were able to get in.
    - crooked-v 4y ago
      No, it's overstrained because every major metro area in the US has policies in place that keep enough housing from being built. Housing would need to be built at literally twice the current rate just to cover the current deficit of housing compared to number of families in a reasonable timeframe [1]. [1]: https://www.realtor.com/research/us-housing-supply-gap-expands/ https://www.realtor.com/research/us-housing-supply-gap-expan...
    - standyro 4y ago
      It seems like the western world has the exact opposite housing policy to China. China has completely built out cities just waiting for hundreds of millions of people to move in, but we enrich boomers by subsisting and effectively subsidizing mortgages from the same suburbs built in the 60s and 70s.
      - boringg 4y ago
        China is in deep in their real estate market - not a great example to pull from. No need for derogatory boomer comments - dates your comment and experience.
mariodiana 4y ago
The average rate since 1971 has been over 7 percent: https://themortgagereports.com/61853/30-year-mortgage-rates-chart https://themortgagereports.com/61853/30-year-mortgage-rates-...
- schnitzelstoat 4y ago
  Yeah, but back in the 80's etc. houses were nowhere near as expensive as they are now.
  - mariodiana 4y ago
    I have only one data point to go by, and that's from memory, but I'm not so sure about what you're saying. The house I grew up in is a raised ranch ("high ranch") in a suburb within easy commuting distance to Manhattan (Rockland County, NY). My parents bought the house in 1969 for $40K, which seemed high to them at the time. Right now it probably fetches $450K easily, in this arguably inflated market. But I remember conversations from the last '80s where the house was thought to fetch $350-400K. The price dropped a bit after that period, and then went back up. Maybe my memory is faulty. But I do remember a period in the "go-go" days of the waning Reagan Era where prices in that area were quite high.
- armatav 4y ago
  You need to look at the ratio of price to interest rate over time, not just interest rate.
  - pGuitar 4y ago
- sheepybloke 4y ago
  I was shocked when I was talking with my grandma and she mentioned her mortgage when she bought her house was 18%. This was a couple years ago when I was looking and rates were around 4%. Blew me away.
bick_nyers 4y ago
Lower interest rates shouldn't result in higher list prices. Yes, as a homebuyer you can offer a higher number on a house to win a bidding war, but why are banks allowed to appraise the house so damn high? It's collusion between banks to keep profits high, plain and simple. The price should not be a function of the interest rate, it should be an independent variable. Little has changed from 2008.
- mellavora 4y ago
  Higher interest rates reduces the supply of potential buyers. Less buyers means the asking price will drop. price is not independent of interest rate, and no collusion is required. Only supply and demand.
- abduhl 4y ago
  >> Yes, as a homebuyer you can offer a higher number on a house to win a bidding war, but why are banks allowed to appraise the house so damn high? You've answered your own question. The house is appraised high because homebuyers can offer a higher number on a house to win a bidding war.
- lbotos 4y ago
  > The price should not be a function of the interest rate, it should be an independent variable. And what should that variable be based on? House prices = How much the buyer can afford (savings and income) - Cost of interest You are saying that somehow we should ignore the cost of interest, but like, how??? If interest rates go up, House prices go down. Makes sense to me.
  - mariodiana 4y ago
    It would be largely independent if interest rates represented market rates. However, given the power and actions of the Federal Reserve, that will never be so while that institution exists.
    - lbotos 4y ago
      House prices would not be independent of interest rates if "interest rates represented market rates". House prices may be different but the math above still holds. If interest rates are 1%, house prices are "high", because people can "afford more house". If interest rates go to 20%, house prices drop (by about 20%) because more of their money goes to interest. Your point that if the fed didn't control rates that somehow house prices would be independent of interest rates, but that's not how house prices work. What are you seeing that I'm not?
mellavora 4y ago
EU is getting hit by a double-whammy. Higher interest rates increase the cost of the mortgage (especially since much of the continent is floating-rate), and at the same time, higher energy costs are massively increasing the cost of ownership.
- egeozcan 4y ago
  There are also a lot of people who built empires, renting out tens of flats bought on huge mortgages. They can't raise the rents too much, the law limits it, and a lot of them need to refinance after 10 years, which may crash the housing prices as they may have to pay more for the mortgage than they receive from the rent.
- rcMgD2BwE72F 4y ago
  >higher energy costs are massively increasing the cost of ownership. Why?
  - inglor_cz 4y ago
    Not the OP, but I will bite. If you are buying a new house, most construction materials (bricks, concrete, steel, ceramics) require huge amounts of energy when produced and therefore are now more expensive than before. If you are buying an older house that needs renovation, you need to invest a lot more into insulation etc., lest your heating bills become terrible.
- inglor_cz 4y ago
  "higher energy costs" increase costs of everyone and everything: ownership, renting, producing anything, moving anything (except on foot or using a bicycle) etc. Modern civilization is extremely dependent on affordable energy.
  - prottog 4y ago
    Civilization is really just higher-order consumption of energy per capita.
ericmay 4y ago
I think the rates increases are putting pressure on the housing market, but what I'm curious about is how this affects housing prices in context. If rents are very high (as they are), and high interest rates cause builders to build fewer homes and/or only build higher margin homes (McMansions and such) at higher price points, what is going to happen? Are people just going to be trapped with high rent and never escape to buy a home? Or are interest rates going to rise but prices will also either stabilize or rise?
- AmVess 4y ago
  High rents in many places. The cost of homes going up because of lack of supply and now because of mortgage rates. Where I used to live the cost of starter homes has gone through the roof, and there's tight supply. I rented them out for $1k-ish and now rents are double that...all in about 5 years. Add in landlord unfriendly policies, and rents go up even more. In some areas, these policies are driving out individual landlords, leaving only institutional investors who look for any excuse to raise rents. Rents are expensive now with no end of increases in sight.
- crooked-v 4y ago
  I personally expect increasingly desperate attempts by state and city governments to do literally anything except actually allow enough housing to be built. I don't know where that will lead, but favelas and multigenerational inherites rent contol contracts seem likely.
  - ericmay 4y ago
    Outside of specific places I'm not sure that's even the issue. Nobody is objecting to new homes in Ohio, for example.
    - crooked-v 4y ago
      People move to where there are jobs. Ohio has about 5.4 million jobs currently (going by the Current Employment Statistics survey) and a population of about 11.8 million, and while there's obviously some wiggle room there because jobs aren't a zero-sum game, "get everyone to move to Ohio" ultimately isn't a very helpful plan.
taylodl 4y ago
No. It's putting pressure on anybody who can't buy a house with cash and not requiring a mortgage. For the mortgager, housing is as expensive as ever - even now more expensive. Who cares that the selling price is dropping when the loan expense is greater? Maybe some day they'll be able to refinance at a lower rate but we don't know when that day may be. For those who are buying cash then it's great! Housing prices are falling!
- boringg 4y ago
  To be fair to the authors of the article the majority of people who buy homes are buying with a mortgage. Cash buyers are the minority. To add to that if you were a cash buyer, yes its cheaper than last year but I would probably hold because theres lots more to come out of this market as the rates go up and the sustained pressure of higher mortgage rates filter through peoples personal costs. I'm just happy that people buying home property strictly for speculative purposes are feeling heat. I'm looking at REITs etc.
  - CuriouslyC 4y ago
    They're feeling a lot less pain than people who need to take out mortgages for property. Rents are skyrocketing, and with home prices dropping all cash buyers who are renting the properties out are laughing all the way to the bank while everyone else suffers.
    - mint2 4y ago
      Well yes, someone with >1M of extra cash on hand is going to be not hurting too much. That’s at least 35k of interest alone if they they don’t buy a house and put it in a treasury bill. If the interest rates continue to raise, which they might suspect or a recession happens, then house prices would drop and their 1M house may be a 950k house in a year. A net loss of 85k versus safe treasury bills. Maybe if they rent they can only be out 50k in that scenario. This isn’t definite but people comfortably sitting on piles of cash do have reasons to pause too. (I’d love to be in that situation)
    - 4y ago
parkingrift 4y ago
A $300,000 mortgage without taxes & fees: - On this day in 2021: $1,242/month - Today: $1,818/month - After two more rate hikes: $2,160/month And looking at it from the other side. If your budget for a house (no T&F) was $1,300/month you could afford: - On this day in 2021: $300,000 house - Today: $210,000 - After two more rate hikes: $180,000 ...what's going to happen when people who bought a house during the last 12-18 months need to move? Home prices haven't appreciated enough to offset the dramatic reduction in purchasing power, and rate hikes are dampening demand which will eventually put downward pressure on prices. This is going to be a disaster.
- ladyattis 4y ago
  This makes me happy that I didn't try to buy a house despite the rents going up in my area. I'm in an apartment so this isn't a big issue but it's still significant. In 2015, my apartment rent was 680/mo. Last month, the rent was 965/mo. I've moved into a renovated apartment in the same complex which moved me up to 1015/mo. So, I've seen some major jumps in the last few years there but it seems they're minor compared to the current changes happening for home owners. Edit: Also, I don't pay for water, heat, or trash, so these prices with that in mind are a bargain in my opinion but for anyone else that isn't making my salary or similar it's still a pain.
  - insane_dreamer 4y ago
    $680 -> $1015 is not minor in terms of percentage increase
  - parkingrift 4y ago
    You only "lose" in this scenario if you bought a year ago and need to sell now or sometime in the next 12-18+ months. Even if you're underwater temporarily it won't matter unless you need to sell.
- smileysteve 4y ago
  > what's going to happen when people who bought a house during the last 12-18 months need to move? They'll maybe need to rent out their houses instead selling; which might include them finding a smaller temporary housing. But this should be a minimum exception of people, right? Sure, relative to the quick flips, 7 years is a long time, but the majority bought to stay, right?
rektide 4y ago
The other thing to mention is just that a lot of people have taken a 20%+ wealth haircut too, from the stock markets. With that much abated m2, there's considerably less money supply to buy with.
mawadev 4y ago
Over here in germany it is insane how long inheritance disputes take. I cannot speak for other countries but there is a large number of places staying empty because the legalities do not allow selling or renting it out. I wonder how long the average process takes. I'm looking at 4 perfectly fine apartments that have been empty for 5 years.

107 points by uptown 4y ago

ra7 4y ago

I'm fighting the urge to time the market and put an offer for a house I like in the next few days. The high mortgage rates are putting my monthly payment estimates in uncomfortable territory, but I also know rates are unlikely to go down for a year at least, especially not to historical lows of 2-3% we've seen recently. Only saving grace is home prices are falling in my local market (Austin, TX) and builders are willing to negotiate more for inventory homes. But it's not falling fast enough proportional to the rate hikes. I guess this is working exactly as designed for the Fed, but it sucks.

bombcar 4y ago
If you get what you want at current rates and they go up - got it just in time! And if rates go down enough, refinance!
linguae 4y ago
Same here. I've been on the housing market for the past year, though my local market is the Monterey Bay Area, with parts of the Bay Area and the Central Valley as backup options. Interest rates were considerably lower last year, but the market was an absolute frenzy, with homes receiving multiple offers at prices considerably above asking. At a budget of only $550,000, it was highly discouraging; there were few listings that met my price range to begin with, and all of them ended up selling well above asking. Once the 2022 interest rate hikes began, it's been less frentic; not only are there fewer above-asking bids, but homes are sitting on the market longer, and many sellers have made modest 5-10% cuts in their asking prices. However, a mortgage on a $525,000 home at 6% interest is still larger than a mortgage on a $550,000 home at 3.5%. Even though 6% interest is still low by historical standards, today's home prices in my areas of interest are the highest they've ever been. However, I'm still interested in purchasing now because I don't believe prices are going to drop substantially in my area. There needs to be more housing in order to meet the demand, but Santa Cruz and Monterey counties (less so San Benito County due to the growth of Hollister) have historically not been keen on large-scale development. Thus, supply hasn't increased very much, while demand has been increasing, especially when the pandemic started when the prospect of working from home made commuting to Silicon Valley less of an issue.
alistairSH 4y ago
End of the season in a different market so YMMV, but the markets I follow (Reston, VA and some of the towns along the Blue Ridge Mountains) have flatlined in the last two months. Prices are steady or falling and I'm seeing houses that went under contract in early August return to the market. People definitely seem unsure. Funny, I remember the early 80s, when rates were around 18%. The house my parents bought back then was, in part, selected because the existing mortgage was transferable and at a lower rate (~9%). The last decade of rates below 5% are an anomaly. Average over the last 40 years is somewhere in the 5-6% range with many periods well above.
- exhilaration 4y ago
  because the existing mortgage was transferable I've never heard of transferable mortgages! I'm guessing they've been phased out due to changing regulations?
  - dwater 4y ago
    They mostly phased out in the 80's because banks wanted to make more money from fees and rising interest rates. The main reason a buyer would choose to assume a mortgage is because rates have risen, which means the bank would get more money if the buyer got a new loan instead.
  - awinder 4y ago
    Current FHA mortgages are assumable
smaddox 4y ago
You can always refinance when the fed inevitably reverses course.
whitej125 4y ago
Mortgage rates will change more quickly than housing prices. Mortgage rates are a function of the Fed, Treasury Rates and tons of banks/lenders across the nation. National scale influenced, sure, in part by national demand for mortgages. You local housing prices are more of a function of local supply/demand which is partially disconnected from the national scene. So yes, national mortgage rates going high will knock out some potential buyers. At the same time (at least in my area)... rates have gone up... local inventory of available homes has gone down (people just choosing to not sell) and thus housing prices are remaining mostly flat even as national mortgage rates rise.
- ra7 4y ago
  In my local market, prices are definitely dropping [1] and available inventory is up to pre-pandemic levels [2]. But even with price cuts, it's still only at Jan-Feb 2022 levels (I think prices peaked around April-May). It's the lag between rates rising and that being reflected in prices that makes the timing less ideal. [1] https://fred.stlouisfed.org/series/MEDLISPRI12420 https://fred.stlouisfed.org/series/MEDLISPRI12420 [2] https://fred.stlouisfed.org/series/ACTLISCOU12420 https://fred.stlouisfed.org/series/ACTLISCOU12420
deelowe 4y ago
At a macro level, mortgage rates impact the market. At a local level, things may be very different. In my area, 2008/09 impacted the price point I was in by about 5-10%. There was too much growth in the area for the downturn to affect prices that much. We did see volume go down, but prices overall stayed relatively the same.
AnimalMuppet 4y ago
> The high mortgage rates are putting my monthly payment estimates in uncomfortable territory... And they are doing the same for everyone else who needs a mortgage to be able to buy. So, what's going to happen is that in a month or so, house sellers are going to realize that they can't get the same price now that they could six months ago. Offer a price that makes your monthly payments comfortable, even if it's less than the seller is asking. If everybody else is in the same boat, and nobody else offers more, then the seller has a decision to make - your offer, or nothing. It can take a while for them to decide to bite that bullet, though. Note well: I'm not a realtor, nor a real estate investment guru. This is just the way I think this plays out.
- ra7 4y ago
  > Offer a price that makes your monthly payments comfortable, even if it's less than the seller is asking. Exactly what my plan is. At least it's encouraging that sellers are willing to negotiate now.
daniel-cussen 4y ago
Willing to negotiate more. Hah. You know I've seen both sides, was getting an introduction to a construction job from a Central American, guy was long-term very solid, told me yeah wages are $20 but they charge $75 dollars per hour to the buyer. Dude willing to negotiate. All about making things more expensive and charging cost-plus. Dude like hospitals $120 for a box of tissue paper. Negreation. Very negreated market. Everybody squeezing, everybody trying to corner, everybody seeking to conspire, everybody out to fuck you. Less so as you go inland, but to an extent still. Just considered easy money. You and me, anybody who hasn't bought in yet gets negreated. Anything but supply and demand. Dude that's why startups attempt to take on this kind of markets and always fail, that medicine and education, always nosedive, why? Highly negreated. Negreado, treated like a source of free labor, ie like negros especially bozales (direct from Africa) were exploited in Chile. It's supposed to be real estate agents just make shitloads of free money. Like three phone calls boom 60000 USD. No effort. Just sleazing. Connections. Access. So it can't be disrupted, really. The whole industry is set up as an economic army prepared for disruption with...with anything. Everything on the table. You think the entrepreneurs before 2006 couldn't see inefficiencies? Couldn't say hey I can do it better? Didn't have the internet? There were phone lines, there was fax, sneakernet, there was tons, and there was internet going back to the 80's. A professor told me of a spreadsheet business online in the 80's. Dude, the reason disruption can't happen is because everybody backstabs it right away. The industry is that. Also sometimes build houses, also sometimes prescribe some pills, also sometimes actually hand out sheepskins. But the intent is to deny, not supply. Deny and demand.

prottog 4y ago

I bought a house recently so I'm theoretically on the losing side of any drop in home prices resulting from this, but I still support it. I'm of the opinion that the government putting a ceiling on the price of money by controlling interest rates leads to all sorts of market dysfunctions, not the least of which is asset inflation of the kind we've seen recently.

deleted 4y ago
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mech987 4y ago
I think we're seeing the culmination of a long-term trend of declining interest rates. Interest rates have been declining for 400 years, and have finally reached the point where they bottom out at 0. (or even negative interest rates, in European bank policy!). The bad part of this I think, is that valuations of long-term cash flows start becoming more and more sensitive to rates. The difference between a 2.75% mortgage and a 3.75% mortgage is bigger, relatively, than the difference between a 3.75% mortgage and a 4.75% mortgage; because people buy the largest, longest mortgage they can afford, small changes in small interest rates result in large changes in the monthly payment. I feel like this ends up making the whole housing market more volatile.
- onlyrealcuzzo 4y ago
  This exactly! If you can assume long-term stable interest rates and have access to a 30-year fixed mortgage - the difference between a 2% mortgage and a 1% mortgage is the same as the difference between a 12% mortgage and a 6% mortgage. Every percentage points that central banks artificially reduce interests by exponentially distorts the markets. A 0% mortgage with a 1% property tax - theoretically - costs you -2% (x 5 for leverage per year). On a million dollar house - you'd get paid $100k per year to live there. The effects of this policy have been a moral hazard unseen before, and if it ever has to end, we're in for wild times.
  - andsoitis 4y ago
    > A 0% mortgage with a 1% property tax - theoretically - costs you -2% (x 5 for leverage per year). How did you calculate that?

kory 4y ago

It’s really a challenge. Do I love my 5br house in Seattle that I pay only $3200 a month for? Yes. Low rates and low prices made that possible for a brief moment in 2020. Will we be here forever? No… I don’t think I want to raise kids in the city. Everything is densifying and that’s not for me. But as rates continue to rise, the financial cost of moving seems increasingly large. We might be stuck here for the entire mortgage term if prices drop below 2020 prices, which is feasible if rates continue to rise for the next few years. Payment a few thousand a month higher, purchase price a few hundred k lower. I could always rent it out. I really do want to preserve this old house and it would need to go the right tenant that takes care of it, likely for a below market rent in exchange. However, given how absolutely unfriendly rental laws are in Seattle and how little choice I’ll really have in a tenant as a result, I’m very averse to that. Maybe I’ll just leave it empty once enough time passes for the payment to be inflated away to a negligible amount. I suspect inventory will stay low for these reasons. People either can’t move, don’t have an incentive to rent out their place, or will rent and not sell to avoid catastrophic losses.

bombcar 4y ago
Prices have rarely fallen even in bad times. It may happen again, but don’t let a loss prevent you from doing what you want. And likely renting is a hell you don’t want to get into unless you can basically rent to family. Landlords are not loved.
- kory 4y ago
  Even if I do retain a profit when selling, we’re going to be trading down to a worse house. Payments for the same house now based on the Redfin estimate and current interest rates are more than double. Given how bad the tech sector is doing now that the real world is back post lockdowns, I’m not comfortable taking on that much more of a payment.
  - bombcar 4y ago
    Yeah, but don’t forget to take in all variables (total cost of ownership as it were) - the mortgage is one factor, taxes, schools, commute all play into it. Moving to a more expensive monthly payment in a school district where you don’t need to send kids to private school to get a good education can save thousands of dollars, for example. But I know how it is. I had an underwater house in CA for 10+ years before I could refinance.

spicyusername 4y ago

Bringing house prices down either means increasing the supply or decreasing demand. The FED only has a demand-side lever, and "decreasing demand" is exactly equivalent to "reducing affordability". It would be nice to see more attention paid to increasing housing supply, but that is a much more complex problem, so I'm not surprised that we see less emphasis on it.

prottog 4y ago
The difficult part about increasing supply is that it usually involves dialing back state intervention, and there's very little incentive in the political system for anyone to do that.
- deleted 4y ago
  [deleted]
Justsignedup 4y ago
There's also increasing a lot of supply. Without building. The biggest problem in the country is that investment capital is swooping in any buying any valuable property up and re-selling it for a lot more OR renting it out for a lot. Because investment is just buying everything for cash, they don't really care. We need a massive tax on investment property, something that'll require the house to become completely unaffordable to re-sell, so investing will have negative returns due to taxation. Then suddenly a ton of houses will fly back on the market because investors will be trying to dump inventory. ALSO property taxes can help: If you live in a house, your property tax is identical to today. If you don't, your property tax is say 10x'd. Being a real-estate investor won't be very lucrative. Meanwhile this won't affect regular homebuyers since they won't have this tax.
- mgraczyk 4y ago
  On the face of it, this makes no sense. Vacancy rates are incredibly low everywhere in the US, and what you're describing would push prices down as much as up.

bombcar 4y ago

Mortgage rates hit 2% below inflation. Hmmm. Somebody’s doing the subsidizing.

crooked-v 4y ago
Inflation numbers are an average, not a baseline.
- hackernewds 4y ago
  as are mortgage rates
dragontamer 4y ago
Today's rate of inflation means very little to a 30-year mortgage. The rate of inflation 5, 10, 15+ years from now is what matters. But if you think inflation really will be that high for so long, I got some TIPS to sell you...
- mucle6 4y ago
  But can't people refinance? Is the bank offering lower % interest that is subsidized by people who don't refinance?
  - bombcar 4y ago
    The mortgage rate is basically set by whoever is buying the bonds they are packaged as. So it floats a certain points higher than treasuries, usually.
  - dragontamer 4y ago
    I have a 2.3% mortgage. Do you think I'm going to refinance today? No. The bank is stuck with 2.3% from me for the next 15 years. Its a bad deal for them, and a great deal for me. As long as interest rates go up, there's no refinancing to occur. Its financially the wrong move for the property owners.

rr888 4y ago

Technically 8% inflation and 6% interest rates should be a great time to load up on debt and buy hard assets. Affordability seems to drive everything though which is why I've been wrong for 20 years about this. Who knows what'll happen next.

xuki 4y ago
I'll let you guess why (hard) asset prices have increased so much for the past 20 year.
- rr888 4y ago
  Thanks I figured it out while my friends (who bought a lot of property) got rich and I waited for the crash. That's the problem right markets can stay irrational until you're dead.
  - s1artibartfast 4y ago
    I spent 10 years in the same boat. Sometimes it is hard to distinguish a irrational market from one you simply dont like. Hosing prices have always been higher than I would like them to be. However, there has been no shortage of people willing to pay those high market prices. At the end of the day, I had to ask if it was the market that was irrational or just me.
    - rr888 4y ago
      Yeah my problems compounded because I grew up in a small unloved city where property was always cheap to big cities with expensive real estate that seemed crazy but maybe makes sense.
esoterica 4y ago
You're locking in 6% for 30 years, inflation is going to vary.
- 4y ago

francisofascii 4y ago

It is just me or is 6% a reasonable rate for a 30 year, fixed rate mortgage?

crooked-v 4y ago
It would be, except a lot of people were only able to get into the current overstrained housing market at all because of miniscule interest rates.
- staringback 4y ago
  You've got it the wrong way, it is overstrained because interest rates were so minuscule and so many people were able to get in.
  - crooked-v 4y ago
    No, it's overstrained because every major metro area in the US has policies in place that keep enough housing from being built. Housing would need to be built at literally twice the current rate just to cover the current deficit of housing compared to number of families in a reasonable timeframe [1]. [1]: https://www.realtor.com/research/us-housing-supply-gap-expands/ https://www.realtor.com/research/us-housing-supply-gap-expan...
  - standyro 4y ago
    It seems like the western world has the exact opposite housing policy to China. China has completely built out cities just waiting for hundreds of millions of people to move in, but we enrich boomers by subsisting and effectively subsidizing mortgages from the same suburbs built in the 60s and 70s.
    - boringg 4y ago
      China is in deep in their real estate market - not a great example to pull from. No need for derogatory boomer comments - dates your comment and experience.

mariodiana 4y ago

The average rate since 1971 has been over 7 percent: https://themortgagereports.com/61853/30-year-mortgage-rates-chart https://themortgagereports.com/61853/30-year-mortgage-rates-...

schnitzelstoat 4y ago
Yeah, but back in the 80's etc. houses were nowhere near as expensive as they are now.
- mariodiana 4y ago
  I have only one data point to go by, and that's from memory, but I'm not so sure about what you're saying. The house I grew up in is a raised ranch ("high ranch") in a suburb within easy commuting distance to Manhattan (Rockland County, NY). My parents bought the house in 1969 for $40K, which seemed high to them at the time. Right now it probably fetches $450K easily, in this arguably inflated market. But I remember conversations from the last '80s where the house was thought to fetch $350-400K. The price dropped a bit after that period, and then went back up. Maybe my memory is faulty. But I do remember a period in the "go-go" days of the waning Reagan Era where prices in that area were quite high.
armatav 4y ago
You need to look at the ratio of price to interest rate over time, not just interest rate.
- pGuitar 4y ago
sheepybloke 4y ago
I was shocked when I was talking with my grandma and she mentioned her mortgage when she bought her house was 18%. This was a couple years ago when I was looking and rates were around 4%. Blew me away.

bick_nyers 4y ago

Lower interest rates shouldn't result in higher list prices. Yes, as a homebuyer you can offer a higher number on a house to win a bidding war, but why are banks allowed to appraise the house so damn high? It's collusion between banks to keep profits high, plain and simple. The price should not be a function of the interest rate, it should be an independent variable. Little has changed from 2008.

mellavora 4y ago
Higher interest rates reduces the supply of potential buyers. Less buyers means the asking price will drop. price is not independent of interest rate, and no collusion is required. Only supply and demand.
abduhl 4y ago
>> Yes, as a homebuyer you can offer a higher number on a house to win a bidding war, but why are banks allowed to appraise the house so damn high? You've answered your own question. The house is appraised high because homebuyers can offer a higher number on a house to win a bidding war.
lbotos 4y ago
> The price should not be a function of the interest rate, it should be an independent variable. And what should that variable be based on? House prices = How much the buyer can afford (savings and income) - Cost of interest You are saying that somehow we should ignore the cost of interest, but like, how??? If interest rates go up, House prices go down. Makes sense to me.
- mariodiana 4y ago
  It would be largely independent if interest rates represented market rates. However, given the power and actions of the Federal Reserve, that will never be so while that institution exists.
  - lbotos 4y ago
    House prices would not be independent of interest rates if "interest rates represented market rates". House prices may be different but the math above still holds. If interest rates are 1%, house prices are "high", because people can "afford more house". If interest rates go to 20%, house prices drop (by about 20%) because more of their money goes to interest. Your point that if the fed didn't control rates that somehow house prices would be independent of interest rates, but that's not how house prices work. What are you seeing that I'm not?

mellavora 4y ago

EU is getting hit by a double-whammy. Higher interest rates increase the cost of the mortgage (especially since much of the continent is floating-rate), and at the same time, higher energy costs are massively increasing the cost of ownership.

egeozcan 4y ago
There are also a lot of people who built empires, renting out tens of flats bought on huge mortgages. They can't raise the rents too much, the law limits it, and a lot of them need to refinance after 10 years, which may crash the housing prices as they may have to pay more for the mortgage than they receive from the rent.
rcMgD2BwE72F 4y ago
>higher energy costs are massively increasing the cost of ownership. Why?
- inglor_cz 4y ago
  Not the OP, but I will bite. If you are buying a new house, most construction materials (bricks, concrete, steel, ceramics) require huge amounts of energy when produced and therefore are now more expensive than before. If you are buying an older house that needs renovation, you need to invest a lot more into insulation etc., lest your heating bills become terrible.
inglor_cz 4y ago
"higher energy costs" increase costs of everyone and everything: ownership, renting, producing anything, moving anything (except on foot or using a bicycle) etc. Modern civilization is extremely dependent on affordable energy.
- prottog 4y ago
  Civilization is really just higher-order consumption of energy per capita.

ericmay 4y ago

I think the rates increases are putting pressure on the housing market, but what I'm curious about is how this affects housing prices in context. If rents are very high (as they are), and high interest rates cause builders to build fewer homes and/or only build higher margin homes (McMansions and such) at higher price points, what is going to happen? Are people just going to be trapped with high rent and never escape to buy a home? Or are interest rates going to rise but prices will also either stabilize or rise?

AmVess 4y ago
High rents in many places. The cost of homes going up because of lack of supply and now because of mortgage rates. Where I used to live the cost of starter homes has gone through the roof, and there's tight supply. I rented them out for $1k-ish and now rents are double that...all in about 5 years. Add in landlord unfriendly policies, and rents go up even more. In some areas, these policies are driving out individual landlords, leaving only institutional investors who look for any excuse to raise rents. Rents are expensive now with no end of increases in sight.
crooked-v 4y ago
I personally expect increasingly desperate attempts by state and city governments to do literally anything except actually allow enough housing to be built. I don't know where that will lead, but favelas and multigenerational inherites rent contol contracts seem likely.
- ericmay 4y ago
  Outside of specific places I'm not sure that's even the issue. Nobody is objecting to new homes in Ohio, for example.
  - crooked-v 4y ago
    People move to where there are jobs. Ohio has about 5.4 million jobs currently (going by the Current Employment Statistics survey) and a population of about 11.8 million, and while there's obviously some wiggle room there because jobs aren't a zero-sum game, "get everyone to move to Ohio" ultimately isn't a very helpful plan.

taylodl 4y ago

No. It's putting pressure on anybody who can't buy a house with cash and not requiring a mortgage. For the mortgager, housing is as expensive as ever - even now more expensive. Who cares that the selling price is dropping when the loan expense is greater? Maybe some day they'll be able to refinance at a lower rate but we don't know when that day may be. For those who are buying cash then it's great! Housing prices are falling!

boringg 4y ago
To be fair to the authors of the article the majority of people who buy homes are buying with a mortgage. Cash buyers are the minority. To add to that if you were a cash buyer, yes its cheaper than last year but I would probably hold because theres lots more to come out of this market as the rates go up and the sustained pressure of higher mortgage rates filter through peoples personal costs. I'm just happy that people buying home property strictly for speculative purposes are feeling heat. I'm looking at REITs etc.
- CuriouslyC 4y ago
  They're feeling a lot less pain than people who need to take out mortgages for property. Rents are skyrocketing, and with home prices dropping all cash buyers who are renting the properties out are laughing all the way to the bank while everyone else suffers.
  - mint2 4y ago
    Well yes, someone with >1M of extra cash on hand is going to be not hurting too much. That’s at least 35k of interest alone if they they don’t buy a house and put it in a treasury bill. If the interest rates continue to raise, which they might suspect or a recession happens, then house prices would drop and their 1M house may be a 950k house in a year. A net loss of 85k versus safe treasury bills. Maybe if they rent they can only be out 50k in that scenario. This isn’t definite but people comfortably sitting on piles of cash do have reasons to pause too. (I’d love to be in that situation)
  - 4y ago

parkingrift 4y ago

A $300,000 mortgage without taxes & fees: - On this day in 2021: $1,242/month - Today: $1,818/month - After two more rate hikes: $2,160/month And looking at it from the other side. If your budget for a house (no T&F) was $1,300/month you could afford: - On this day in 2021: $300,000 house - Today: $210,000 - After two more rate hikes: $180,000 ...what's going to happen when people who bought a house during the last 12-18 months need to move? Home prices haven't appreciated enough to offset the dramatic reduction in purchasing power, and rate hikes are dampening demand which will eventually put downward pressure on prices. This is going to be a disaster.

ladyattis 4y ago
This makes me happy that I didn't try to buy a house despite the rents going up in my area. I'm in an apartment so this isn't a big issue but it's still significant. In 2015, my apartment rent was 680/mo. Last month, the rent was 965/mo. I've moved into a renovated apartment in the same complex which moved me up to 1015/mo. So, I've seen some major jumps in the last few years there but it seems they're minor compared to the current changes happening for home owners. Edit: Also, I don't pay for water, heat, or trash, so these prices with that in mind are a bargain in my opinion but for anyone else that isn't making my salary or similar it's still a pain.
- insane_dreamer 4y ago
  $680 -> $1015 is not minor in terms of percentage increase
- parkingrift 4y ago
  You only "lose" in this scenario if you bought a year ago and need to sell now or sometime in the next 12-18+ months. Even if you're underwater temporarily it won't matter unless you need to sell.
smileysteve 4y ago
> what's going to happen when people who bought a house during the last 12-18 months need to move? They'll maybe need to rent out their houses instead selling; which might include them finding a smaller temporary housing. But this should be a minimum exception of people, right? Sure, relative to the quick flips, 7 years is a long time, but the majority bought to stay, right?

rektide 4y ago

The other thing to mention is just that a lot of people have taken a 20%+ wealth haircut too, from the stock markets. With that much abated m2, there's considerably less money supply to buy with.

mawadev 4y ago

Over here in germany it is insane how long inheritance disputes take. I cannot speak for other countries but there is a large number of places staying empty because the legalities do not allow selling or renting it out. I wonder how long the average process takes. I'm looking at 4 perfectly fine apartments that have been empty for 5 years.