4 ms·
Yeah, people price housing in terms of the monthly payment, not the dollar amount so much... higher interest rates mean people can afford less principal. And m
by paulmd 4y ago
Yeah, people price housing in terms of the monthly payment, not the dollar amount so much... higher interest rates mean people can afford less principal. And mortgage rates have doubled in less than a year.
(of course, in practice, once they've bought, people tend to be averse to their "investment" losing 20% or 30%, even if they did lock in a good interest rate they'll be paying for years to make up the fall. this has always been one of the giant gotchas with keeping interest rates so eternally low... also the cost of financing the national debt just zoomed up too.)
- aschearer 4y agoWouldn't you agree the dollar amount plus the interest rate broadly determine the monthly payment? So we can compare a 2001 home at $300,000 for 7% vs a 2020 home at $440,000. Someone buying a home today will pay more month to month for a median home.
- extesy 4y agoYou need to account for inflation. Dollar value in 2001 and 2022 is not the same. CPI today is ~295 vs ~175 in 2001, so while nominally today's monthly payment is higher, it is not higher in terms of its purchasing power.
- aschearer 4y agoI adjusted for inflation in my numbers above. The median 2001 home cost $180,000 in 2001 dollars. $300,000 in today's dollars. Someone who could purchase a median home in 2001 cannot purchase a median home in 2020 without increasing their monthly cost. Using Google's mortgage calculator and punching in those numbers at 7%: $1,996 / month in 2001 vs $2,972 / month in 2022 That's in today's dollars, accounting for inflation. Almost 50% more. Feel free to point out an error in my math.
- extesy 4y agoDidn't know you already inflation-adjusted your numbers. So I looked up the prices, mortgage rates and CPI in 2001 and 2022. I think your math is correct.
- gizmo686 4y ago> of course, in practice, once they've bought, people tend to be averse to their "investment" losing 20% or 30%, even if they did lock in a good interest rate they'll be paying for years to make up the fall. This is not entirely irrational. The median length of hone ownership is about 13 years. With stable value and interest rates, this is not a big issue. People can role their equity into their next home and just pay the transaction cost of selling. With rising rates and falling prices, you would also need to realize the loss, and give up on the counteracting benefit of a low rate. The net effect of this is to make people more reluctant to move than they otherwise would be.
- deleted 4y ago[deleted]