5 ms·

Given that mortgage rates recently rose past 6%, seems to me this latest rate increase is going to put strong pressure on house prices. The rate has a huge impa

jollyllama 4y ago
Quite possibly. It depends on what happens to supply and how desperate people are to sell.
plandis 4y ago
Good time to buy if you’re wealthy with cash on hand.
- jayski 4y ago
  can you elaborate a little more?
  - gjs278 4y ago
  - ferdowsi 4y ago
    I'd disagree that it's a good time to buy now, as prices are still high. But if prices start to decline substantially it will be a good opportunity, as you can refinance a high rate mortgage during low rate periods (like many people did in the last few years)
- colinmhayes 4y ago
  The biggest advantage of real estate investing is the easy access to cheap, reliable leverage. This is absolutely not a good time to get into a business that requires debt 4x higher than equity to make money.
friedman23 4y ago
As someone that has been exploring real estate for the first time, after speaking with some people it seems that mortgages have generally been less expensive than rent? Good luck finding something like that with today's prices and interest rates.
- freeone3000 4y ago
  If this isn't true for your area, the general advice is to wait a few years. Your mortgage payments are locked in, rent increases year-over-year at single- or double-digit percents.
  - unethical_ban 4y ago
    Mortgages can be refinanced at a lower rate when the market allows, correct?
    - bombcar 4y ago
      Correct, however there are costs associated with refinancing (either "built in" or upfront) and in some cases the refinanced loan has fewer protections. For example, a purchase loan in California is non-recourse, but a refinance is not. However, you can get "trapped" as I did if you bought near a high point, and then interest rates and prices dropped, and since I was now "underwater" I couldn't refinance, even though I was perfectly capable and did continue to pay on the original loan. Eventually the property appraised high enough to refinance again.
      - toast0 4y ago
        > For example, a purchase loan in California is non-recourse, but a refinance is not. That's not the case for refinances after Jan 1, 2013.
        bombcar 4y ago
        Good to know! https://www.bankruptcysoapbox.com/california-extends-protection-for-home-loan-borrowers/ https://www.bankruptcysoapbox.com/california-extends-protect...
paulpauper 4y ago
Given that mortgage rates recently rose past 6%, seems to me this latest rate increase is going to put strong pressure on house prices. The rate has a huge impact on the monthly payment required to service a loan, more so than is immediately apparent without doing the math. People keep hoping or expecting this, yet prices keep going up. As long as wages for top earners keep rising, so will demand in expensive areas. Also, real estate did well in the 90s despite high interest rates, too.
- uptownfunk 4y ago
  Prices have corrected across the market, where are you seeing prices going up.
  - jejeyyy77 4y ago
    Have they? Certainly have not seen this beyond prices for rural/exurb properties that shot up during covid - even those prices have just come back to what they were before covid.
    - uptownfunk 4y ago
      That's what I meant by the correction - correction to pre COVID levels. The truth is there are many areas where prices have yet to correct to pre-COVID levels of price and growth. If this is driven by inflation then it may take some time (~5 years or so based on what I am reading elsewhere). If it doesn't then maybe this is a systemic increase due to the shift of high earners out of traditional HCOL areas (Bay area, NYC)
- qaq 4y ago
  They are coming down (maybe not in SV), but I've being watching Riverside county and it's being very noticeable.
- hot_gril 4y ago
  I look at rent to gauge the real cost of living somewhere, cause that takes land speculation out of the equation. It seems like house prices in expensive areas have been rising way more quickly than rent. So yes, I expect this rate hike to cause a big dump in house prices. In a few months or so I'll be right or wrong.
vsareto 4y ago
Housing demand is supported by investors who probably never pay interest on the homes they buy, so I doubt you will see much decrease. I don't think you can really control home prices with interest rates any more.
- dougmwne 4y ago
  It seems there are still lots of mortgages issued in the US. Prices are set at the margin, so small decreases in demand can have a big impact on price. Looking at the data, I don’t see evidence that no one loans money to buy houses anymore. https://www.statista.com/statistics/205937/us-mortgage-originations-since-1990/ https://www.statista.com/statistics/205937/us-mortgage-origi...
alecco 4y ago
If (when) the Fed starts selling mortgage-backed securities in its balance sheet ($2 Tn), then it will be a bloodbath closer to 2007. And again, there's the problem of people with negative equity just walking out, causing a vicious cycle.
rufus_foreman 4y ago
>> The rate has a huge impact on the monthly payment required to service a loan Which means people with 2% mortgage rates aren't going to be likely to sell their houses and buy another one at 7%. Which puts upward pressure on house prices due to fewer houses on the market. You have both demand and supply effects. In the past in the US, nominal house prices haven't gone down during periods of rising interest rates. Maybe it will be different this time, maybe it won't.

jollyllama 4y ago

Quite possibly. It depends on what happens to supply and how desperate people are to sell.

plandis 4y ago

Good time to buy if you’re wealthy with cash on hand.

jayski 4y ago
can you elaborate a little more?
- gjs278 4y ago
- ferdowsi 4y ago
  I'd disagree that it's a good time to buy now, as prices are still high. But if prices start to decline substantially it will be a good opportunity, as you can refinance a high rate mortgage during low rate periods (like many people did in the last few years)
colinmhayes 4y ago
The biggest advantage of real estate investing is the easy access to cheap, reliable leverage. This is absolutely not a good time to get into a business that requires debt 4x higher than equity to make money.

friedman23 4y ago

As someone that has been exploring real estate for the first time, after speaking with some people it seems that mortgages have generally been less expensive than rent? Good luck finding something like that with today's prices and interest rates.

freeone3000 4y ago
If this isn't true for your area, the general advice is to wait a few years. Your mortgage payments are locked in, rent increases year-over-year at single- or double-digit percents.
- unethical_ban 4y ago
  Mortgages can be refinanced at a lower rate when the market allows, correct?
  - bombcar 4y ago
    Correct, however there are costs associated with refinancing (either "built in" or upfront) and in some cases the refinanced loan has fewer protections. For example, a purchase loan in California is non-recourse, but a refinance is not. However, you can get "trapped" as I did if you bought near a high point, and then interest rates and prices dropped, and since I was now "underwater" I couldn't refinance, even though I was perfectly capable and did continue to pay on the original loan. Eventually the property appraised high enough to refinance again.
    - toast0 4y ago
      > For example, a purchase loan in California is non-recourse, but a refinance is not. That's not the case for refinances after Jan 1, 2013.
      - bombcar 4y ago
        Good to know! https://www.bankruptcysoapbox.com/california-extends-protection-for-home-loan-borrowers/ https://www.bankruptcysoapbox.com/california-extends-protect...

paulpauper 4y ago

Given that mortgage rates recently rose past 6%, seems to me this latest rate increase is going to put strong pressure on house prices. The rate has a huge impact on the monthly payment required to service a loan, more so than is immediately apparent without doing the math. People keep hoping or expecting this, yet prices keep going up. As long as wages for top earners keep rising, so will demand in expensive areas. Also, real estate did well in the 90s despite high interest rates, too.

uptownfunk 4y ago
Prices have corrected across the market, where are you seeing prices going up.
- jejeyyy77 4y ago
  Have they? Certainly have not seen this beyond prices for rural/exurb properties that shot up during covid - even those prices have just come back to what they were before covid.
  - uptownfunk 4y ago
    That's what I meant by the correction - correction to pre COVID levels. The truth is there are many areas where prices have yet to correct to pre-COVID levels of price and growth. If this is driven by inflation then it may take some time (~5 years or so based on what I am reading elsewhere). If it doesn't then maybe this is a systemic increase due to the shift of high earners out of traditional HCOL areas (Bay area, NYC)
qaq 4y ago
They are coming down (maybe not in SV), but I've being watching Riverside county and it's being very noticeable.
hot_gril 4y ago
I look at rent to gauge the real cost of living somewhere, cause that takes land speculation out of the equation. It seems like house prices in expensive areas have been rising way more quickly than rent. So yes, I expect this rate hike to cause a big dump in house prices. In a few months or so I'll be right or wrong.

vsareto 4y ago

Housing demand is supported by investors who probably never pay interest on the homes they buy, so I doubt you will see much decrease. I don't think you can really control home prices with interest rates any more.

dougmwne 4y ago
It seems there are still lots of mortgages issued in the US. Prices are set at the margin, so small decreases in demand can have a big impact on price. Looking at the data, I don’t see evidence that no one loans money to buy houses anymore. https://www.statista.com/statistics/205937/us-mortgage-originations-since-1990/ https://www.statista.com/statistics/205937/us-mortgage-origi...

alecco 4y ago

If (when) the Fed starts selling mortgage-backed securities in its balance sheet ($2 Tn), then it will be a bloodbath closer to 2007. And again, there's the problem of people with negative equity just walking out, causing a vicious cycle.

rufus_foreman 4y ago

>> The rate has a huge impact on the monthly payment required to service a loan Which means people with 2% mortgage rates aren't going to be likely to sell their houses and buy another one at 7%. Which puts upward pressure on house prices due to fewer houses on the market. You have both demand and supply effects. In the past in the US, nominal house prices haven't gone down during periods of rising interest rates. Maybe it will be different this time, maybe it won't.