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I have been wanting to ladder up to a bigger house for a few years now. For a US$1M house, which is the going rate near my area, the jump from 6% to 7% is $500

• conbandit 4y ago
  Minor correction, but you probably mean Blackrock-type firms. Blackwater was a private military company.
  • throwaway1777 4y ago
    Funny picture imagining blackwater kicking down some doors and becoming a landlord
    • esotericimpl 4y ago
  • mizzack 4y ago
    Not to be confused with other investment firms Blackstone, Bridgerock, and Bridgewater. Or tire manufacturer Bridgestone, for that matter.
  • evancox100 4y ago
    Correction to the minor correction, Blackrock, the asset manager/ETF provider, does not engage in institutional purchasing of SFH homes. For a little while BlackStone, the Private Equity firm, had an ownership interest in company that did this, but I’m not sure they still do. https://www.blackrock.com/us/individual/insights/buying-houses-facts https://www.blackrock.com/us/individual/insights/buying-hous... Edited to change “ownership” to “purchasing”
  • pradn 4y ago
    This is such a common confusion, someone made a handy diagram for telling apart the firms comprising the cross product of {"Black", "Bridge"} x {"rock", "water", "stone"}. https://i.redd.it/x0jeiofl7j471.jpg https://i.redd.it/x0jeiofl7j471.jpg
    • egberts1 4y ago
      Kinda the point, no?
• deleted 4y ago
  [deleted]
• kube-system 4y ago
  > I have no idea who is buying houses at these prices Only the most richest parts of the US have homes that start at $1m. And only a fraction of the people rich enough to live there can afford to purchase.
  • foobarian 4y ago
    A lot of the time these are not bootstrapped buyers, but families with help from parents/inheritances etc. That's what you're up against.
    • egberts1 4y ago
      Yes. Parents emptying their saving to invest in their kids’ mortgage down payment. It is the only way to go for attaining (or worse, preserving) middle-class status.
• chasebank 4y ago
  Where do you live? I live in Santa Barbara, a notoriously expensive area, and our housing prices are dropping / housing on market for way longer. Not that it's a fantastic barometer but the monthly email from Zillow for our zip-code usually forecasts some outrageous 1yr growth figure (ex. forecasted increase of 15%) and yesterday the monthly email predicts a 1yr housing price decline of ~2%. Things move slowly in large assets. Hell, the dot com bubble and 08' housing crash both took over 2 years to unwind.
• onlyrealcuzzo 4y ago
  > I have no idea who is buying houses at these prices, if it's not Blackwater-type firms. US housing at 2% 15-year fixed is the biggest handout the world has ever seen. That's why Blackrock-type firms GOBBLED up real estate. They were the first ones to back out when interest rates started going up. They're not the ones buying. I'm guessing the people who are buying are either 1) completely desperate, 2) oblivious, or 3) are willing to bet they'll have a chance to refinance at a much lower rate within a year or two and don't mind the extra carry-cost until then.
  • jobowoo 4y ago
    How are these firms able to buy at such low rates? I thought these loans were reserved for owner-occupied homes.
    • lumost 4y ago
      They don't need to use mortgage financing, they can borrow the money through other methods. One consequence of Fed Reserve rate setting in combination with a regulated mortgage market is that private equity firms can borrow at lower rates than individual borrowers. I wouldn't be surprised to learn that this dynamic has been a major contributor to housing prices rising so quickly.
      • clcaev 4y ago
        Do you mind pointing to a paper that explains this phenomena?
        • onlyrealcuzzo 4y ago
          BlackRock buys stakes in investment firms that directly purchase real estate (some specifically SFH). Those companies issue corporate debt (bonds) to buy houses. The yield they need to offer goes down when the Fed manipulates bond prices by gobbling up non-corporate debt (US Treasuries & MBS). BlackRock & other firms aren't taking on debt to invest in REITs - they're just directing more of their portofolio to REITs when The Fed drives down yields.
• powvans 4y ago
  I think it's a confluence of a few things... 1) You lock your mortgage rate for 90 days, so 90 days ago rates were significantly lower. These will be rolling off soon and by early next year the prevailing rates will obviously be much higher. 2) People are paying points up front to buy down the interest rate. 3) Jumbo mortgages are still much cheaper than conforming (I think a full point).
  • potatolicious 4y ago
    Some other key things: 4) Lots of people buying with all-cash or mostly-cash. You're not at all rate-sensitive if you're a cash buyer. 5) A lot of these cash-heavy buyers are powered by generational wealth. 6) The housing shortage in the US is incredibly acute, so much so that the market will continue chugging along even as borrowing conditions worsen considerably. I bought a couple of years ago when the market was red-hot largely because a family-sized property was unrentable - to get anything big enough for my needs there was no choice but to buy. I imagine others are in the same position now.
    • ok_dad 4y ago
      Yea, in my home we have extremely high prices for homes and the only thing my family can do is rent a house owned by family. We can't find a house to rent on the real market (this house is semi-broken-down and normally wouldn't be rented to anyone), and we certainly can't afford to buy, so I guess we'll live here until we inherit a home from family or maybe get kicked out by my wife's cousin once he inherits this one!
    • sytelus 4y ago
      I don't think you should ever buy home all-cash. That would be financially stupid move. Even at 6% rates, you can get far better return on your capital on long term basis (>15 yrs). Additionally, you can always refinance later whenever rates goes down. So, paying all-cash for a house is losing a lot of ROI on your capital and is plain stupid.
      • smt88 4y ago
• notinfuriated 4y ago
  Or to make up for the $834/month, you need another ~$25k of pre-tax income if you follow a 40% rule, ~$30k for 33%, or ~$50k for 20%.
• hardtke 4y ago
  I don't expect prices to drop much because they are based on the assumption that interest rates will drop and new homeowners can refinance later. We see that with the inverted Treasury yield curve where long term interest rates are projected to be lower than today's rates. Also, with current homeowners locked into their low rates, there will be a shortage of houses on the market (you can't take your low mortgage rate to a new house). So the people buying now will be buyers that absolutely need to and/or buyers with lots of cash that expect to refinance later. The only people selling now are people that absolutely need to.
  • lamontcg 4y ago
    > The only people selling now are people that absolutely need to. The number of people in economic distress being forced to sell their houses will be rising over the next 12 months.
• deleted 4y ago
  [deleted]
• 1980phipsi 4y ago
  "That is NOT happening around here." Yet
• ramesh31 4y ago
  I make a 90th percentile income, and I cannot afford the median (or mean) US home price. Something is seriously wrong.
  • egberts1 4y ago
    This is the part where scraping the bottom of the barrel must become a lifestyle in order to scrape together the ginormous down payment toward a home mortgage. Once done, it gets easier. Of course, that is easier said than done, but it took me 10 years to save up for that first-time 20% down payment. I too was a 90% percentile. And it also … afterward … took several homes upward before I can tap out for a bigger down payment for a 3,200 sq. ft. in “cushy” California while attaining just 25% of take-home pay toward mortgage+insurance. First home was a killer 48% of take-home pay toward house payment.
  • colinmhayes 4y ago
    90th percentile US individual income is 130k. Median house is around 440. You can afford a 440k house on 130k income, even if you have a small amount of other debt.
    • ramesh31 4y ago
      >Median house is around 440. You can afford a 440k house on 130k income, even if you have a small amount of other debt. That's a $3500 monthly housing payment with taxes, PMI, insurance, and 5% down. I bring home $7k net/month. So that would be a 50% monthly housing payment for a 90th percentile income to purchase a median priced home. And that's even if I had the $30-40k cash in the first place to close on the loan, which is impossible to save due to rent, healthcare, transportation, and food costs going through the roof. I seriously have no idea how people are even surviving on 50/60/70k salaries at this point.
      • alkonaut 4y ago
        Aren’t houses normally bought (and therefore priced) by two income households?
      • 4y ago
• lumost 4y ago
  The economics of housing are weird. Someone who bought the 1MM house at 2.5% still has a payment based on 2.5%. This individual's house might be nominally underwater, but they are still comfortably making payments. If they were to move, then they would lose both the downpayment and their monthly payment would increase. So the best bet for them is to stay put. However this might mean that they put the house up for sale, and let it stay for sale for the next 2 years.
  • ProfessorLayton 4y ago
    It gets even weirder if that person loses their ability to continue to pay their relatively comfortable mortgage and they have to put their house on the market. In this tremulous economy being underwater is still a very uncomfortable place to be, unless one has plenty of cash reserves — which may be unwise to spend on an overvalued asset.
    • lumost 4y ago
      aye - we may get general debt reform if enough homes become underwater. I'd have to imagine that the number of people able to buy a million dollar house at the 15% interest rates of the 1970s is not large enough to support the current market.
• chrisBob 4y ago
  If there is a chance you will want to move in the next 10 years, then the numbers are even worse! Not only are you paying more every month with higher rates, but the amortization schedule is not in your favor. For your hypothetical $1M house and a 6->7% rate change you build about 20% less equity each year also.
• nonameiguess 4y ago
  It's likely that most people willing to pay $5,000 a month to get a million dollar house are at least able to pay an additional $800 a month. They may not like it, but people in million dollar houses can usually find a grand a month extra if they really need to. Buyers already at the absolute upper edge of their possible budget are a non-zero proportion of total buyers, but not a large enough proportion to force prices to drop, at least not yet, at least not at that already lofty price range. Price elasticity of demand is likely greater at lower prices, where the buyers don't have much in the way of reserves and excess income.
• sytelus 4y ago
  Can't you buy now at high APR and then refinance later? I would think these large rates would not last more than 2-3 years. You will take some hit for short period but also might get better deal as there are not a lot of buyers. After rates come down, you might easily end up paying 5-10% over asking price. Is there any issues in refinancing later?
  • endisneigh 4y ago
    you assume you can time the bottom of prices with the rates and that rates will come down anytime soon
    • sytelus 4y ago
      You don't have to wait for bottom. Any time rates come down by say 30%, you refinance. You keep doing it so eventually you settle into 2-3% regim.
      • endisneigh 4y ago
        Refinancing isn’t free, and prices could go down after you buy as rates go up.
  • hackeraccount 4y ago
    I tend to agree with your logic but a lot of people think they know what rates will be like and what a home will be worth and any number of things in 2 to 3 years. I'd say that they everyone is always gonna pay more then they want and only question is if it's going to the seller or the bank. My dad gave me these rules for home buying: * can I make the monthly payment for as long as I own the home? * don't buy unless you expect not to sell for 5 years * put down at least 10% * don't get an ARM
• yieldcrv 4y ago
  Give it time. People with adjustable rates haven't been adjusted yet. People that locked in rates at the lows are just fine. Only some small percent of people with mortgages would be affected right now, and optimistic people that think they can pay the rates have a few months before they realize their budget didn't fit. The cash buyers have slowed down. Just not a flood of foreclosures yet.