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My 30-year mortgage is locked in at 2.875%. My overall mortgage payments would go up 60% if I took out a new loan for the same amount at 7%. On one hand, this

My 30-year mortgage is locked in at 2.875%. My overall mortgage payments would go up 60% if I took out a new loan for the same amount at 7%. On one hand, this means that prices need to come down to get houses into peoples' price ranges. On the other hand, if the market is down, there's no way in hell that I'm selling my house. A loan at 2.875% is almost like having free money, so even if I need to move, I'd prefer to rent out my house than sell it. It's unclear if we will see low prices, but fewer sellers, or high prices, but fewer buyers. What's clear though is that this is going to be a low liquidity housing market without a lot of transactions.

lotsofpulp 4y ago
> On the other hand, if the market is down, there's no way in hell that I'm selling my house. As long as you are occupying a residence, it would not effect nationwide or region-wide supply and demand, right? You selling would be offset by you buying. Deaths, divorces, immigration, births, and of course, new construction is what would shift supply and demand curves, on average.
- chadash 4y ago
  Yes, but in this environment, I'd probably try to buy something new without selling (but renting out instead). Also, if lots of people are buying and selling, even if aggregate demand is the same, it's a more liquid market. If I'm a first-time homebuyer, I'd rather play in a market of musical chairs then try to buy in a theater where only the dead and divorced get up from their seats.
- bombcar 4y ago
  That's entirely true if all houses are the proverbial spherical identical house, but people chasing to remain "where they are" also slows down upgrades and downgrades. If a family that would normally have sold their older two bedroom and moved to a four bedroom instead chooses to remain in the two bedroom longer, that two bedroom doesn't appear on the market, a four bedroom languishes. And if nobody is building two bedroom houses, that can have ripple effects.
PragmaticPulp 4y ago
> A loan at 2.875% is almost like having free money, so even if I need to move, I'd prefer to rent out my house than sell it. I've watched a lot of friends go through this thought process recently. Locally, the thought process grinds to a halt when they see the exorbitant prices that property management firms are charging for new customers these days. Apparently there's a huge spike in the number of people trying to become landlords because they don't want to give up their low mortgage rates, like you. Property management firms are taking advantage of this. I also see a lot of people changing their minds when they do the math on the size of down payment they'd need and the monthly cost of a 7% mortgage on the types of houses they want to move to. There's a reason people talk about starter homes and trading up as opposed to accumulating additional properties every time they move to a nicer house. OTOH, I know a number of well compensated software engineers who were trying to pour their money into real estate investments. All of them are very firmly paused on buying new properties at the moment.
- hef19898 4y ago
  Why would you pay a property management firm if you rent out a house / appartment long term? For multiple units sure, but that is a different beast.
  - xxpor 4y ago
    Because who wants to deal with the day to day nonsense? I've got a full time job and hobbies already.
  - deleted 4y ago
    [deleted]
  - smodo 4y ago
    Because you want to be insulated from the trouble renters can cause. Heating breaks at 7 in the morning on saturday? Time to call the landlord. They let mold destroy the bathroom? Better have insurance and now hire someone to take care of it etc. All of that goes away for a percentage.
    - 4y ago
sertorius 4y ago
I think 30-year fixed mortgages are somewhat of an American phenomenon (perhaps due to the luxury of having the global reserve currency). They are not generally available in Canada or UK, where 5-year fixed rates are the norm.
- jonatron 4y ago
  France also does long term fixed mortgages. No idea why.
  - bombcar 4y ago
    It's to encourage home ownership, which may or may not be a laudable goal. Personally I take advantage of it and think it's not necessarily a bad thing, but wish it was more direct about what it's trying to do.
    - lotsofpulp 4y ago
      If a government wanted to encourage home ownership, it would either incentivize building more homes to bring down price, and/or give cash to people so they are able to buy. The latter option would require government taking from richer to give to poorer, or issuing new money, which is sort of the same by reducing purchasing power of money, The long term fixed rate mortgage is where no wealth gets redistributed today, but rather from future taxpayers or users of the currency.
      - ClumsyPilot 4y ago
        if government wants to encourage buying, it must make take private equity and wallstreet out of property speculation. They leave swaths of properties empty just for the purpose of land banking. Secondary step would be to make landlord-ing less attractive by giving tenants a lot of rights, naking them hard to evict, thank kind of thing. This would make houses less atractive as an investment asset. Lastly you could increase property taxes, again driving down atteactivenes of hiuses to investment. Beinging down price of houses is easy. The question is what do you do with all the people who bought a house for 500k and now its worth 250k and they are stuck
ericmcer 4y ago
So if you are a first time home-buyer who needs a loan to purchase a home you are going to get shafted on interest rates, but if you already own real estate you can either buy stuff cash or sell a property and defer capital gains to buy a new one. I struggle to see how raising interest rates helps the class that is most reliant on loans to even enter the market.
- wwweston 4y ago
  I'm not sure about this either. My guess is that there are two factors at work: 1) raising rates and otherwise making money more expensive encourages capital to do something else with their money than speculate on real estate cheaply, which was a pretty appealing option over the last 5-6 years (let alone the last 2). 2) it's a mistake to rely on interest rates alone to address issues here. There's a whole raft of policy issues that should be brought into play here: progressive taxation by ownership volume and vacation-rental usage, better interest breaks for first-time homebuyers, encourage owner restoration and discourage investor-flippers. BUT every other way of addressing the policy is actually harder politically, since one party sees inequality as feature-not-bug and will actively fight attempts to address it (especially if it represents a win for their opposition), and the other has both a tenuous hold on power and a coalition that may not be all on board.
bamboozled 4y ago
The problem is that due to inflation, the cost of living has sky rocketed too, at least in a lot of countries. This means your mortgage repayments aren't the only thing that has increased, so has absolutely everything else in your life. Look at Australia for example, they're predicting the already ridiculously high food prices to go even higher, up to 7-10% due to major flooding events this year. So your analysis kind of works, but it's not factoring in whether people feel ok about paying > $200k (AUD) or more for a house which isn't worth that much anymore (prices are going down already, many many people bought at the height of a bubble, due to FOMO), then having absolutely no money to do anything with their house to improve it (building costs are astronomical) and having no money for leisure or holidays, then you have high energy and school fees to add to all of that. In my opinion, this is what will start to drive more people to sell. It's not just the house prices, but it's the burden of being tied to such huge debt. Also money isn't so cheap right now, so it will slow down property speculation. Many people also bought houses thinking that if they don't like being so heavily leveraged they will just sell their property at a net gain. Not at a loss, this I think is starting to scare people. I'd say we'll see a lot of people at least consider downsizing in the near future.
- duck 4y ago
  Is there any data about downsizing? It almost seems impossible to do at some level (and I'm sure depending on the area) because of an extremely short supply of smaller houses these days. I could be wrong, but this seems like the last area to cut expenses on for most families.
  - bombcar 4y ago
    You can sidesize - take an area of a few miles across, set your Zillow search to 3 bed or similar, and sort by price and then by sq ft.
- kimburgess 4y ago
  > So your analysis kind of works, but it's not factoring in whether people feel ok about paying > $200k (AUD) or more for a house... Australian here, $200k would be a dream! You're off by a factor of ~4.6: https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/total-value-dwellings/latest-release#mean-dwelling-price https://www.abs.gov.au/statistics/economy/price-indexes-and-.... Over the past few years the appreciation on housing has meant that for many people their shelter, and entirely non-productive asset, has outpaced their own earnings. For anyone not on that rocket ship, good luck.
scarface74 4y ago
> I'd prefer to rent out my house than sell it. Says someone who probably has never been a landlord. I would rather poke both of my eyes out while getting a rectal exam than ever be a landlord again.
bdcravens 4y ago
I locked in February on a 180-day lock: 3.25%. There were some documentation issues that I had to rely on a third-party (the IRS) to resolve, so I had to start looking elsewhere. Rocket Mortgage was able to lock me at 5.25% (around April/May) - this would cost me an additional $400 each month. (Fortunately the original lender was able to make to adjust what they were asking for - it wasn't a matter of not closing the loan, but it meant they had to hold it rather than selling it while the IRS gets their act together)

lotsofpulp 4y ago

> On the other hand, if the market is down, there's no way in hell that I'm selling my house. As long as you are occupying a residence, it would not effect nationwide or region-wide supply and demand, right? You selling would be offset by you buying. Deaths, divorces, immigration, births, and of course, new construction is what would shift supply and demand curves, on average.

chadash 4y ago
Yes, but in this environment, I'd probably try to buy something new without selling (but renting out instead). Also, if lots of people are buying and selling, even if aggregate demand is the same, it's a more liquid market. If I'm a first-time homebuyer, I'd rather play in a market of musical chairs then try to buy in a theater where only the dead and divorced get up from their seats.
bombcar 4y ago
That's entirely true if all houses are the proverbial spherical identical house, but people chasing to remain "where they are" also slows down upgrades and downgrades. If a family that would normally have sold their older two bedroom and moved to a four bedroom instead chooses to remain in the two bedroom longer, that two bedroom doesn't appear on the market, a four bedroom languishes. And if nobody is building two bedroom houses, that can have ripple effects.

PragmaticPulp 4y ago

> A loan at 2.875% is almost like having free money, so even if I need to move, I'd prefer to rent out my house than sell it. I've watched a lot of friends go through this thought process recently. Locally, the thought process grinds to a halt when they see the exorbitant prices that property management firms are charging for new customers these days. Apparently there's a huge spike in the number of people trying to become landlords because they don't want to give up their low mortgage rates, like you. Property management firms are taking advantage of this. I also see a lot of people changing their minds when they do the math on the size of down payment they'd need and the monthly cost of a 7% mortgage on the types of houses they want to move to. There's a reason people talk about starter homes and trading up as opposed to accumulating additional properties every time they move to a nicer house. OTOH, I know a number of well compensated software engineers who were trying to pour their money into real estate investments. All of them are very firmly paused on buying new properties at the moment.

hef19898 4y ago
Why would you pay a property management firm if you rent out a house / appartment long term? For multiple units sure, but that is a different beast.
- xxpor 4y ago
  Because who wants to deal with the day to day nonsense? I've got a full time job and hobbies already.
- deleted 4y ago
  [deleted]
- smodo 4y ago
  Because you want to be insulated from the trouble renters can cause. Heating breaks at 7 in the morning on saturday? Time to call the landlord. They let mold destroy the bathroom? Better have insurance and now hire someone to take care of it etc. All of that goes away for a percentage.
  - 4y ago

sertorius 4y ago

I think 30-year fixed mortgages are somewhat of an American phenomenon (perhaps due to the luxury of having the global reserve currency). They are not generally available in Canada or UK, where 5-year fixed rates are the norm.

jonatron 4y ago
France also does long term fixed mortgages. No idea why.
- bombcar 4y ago
  It's to encourage home ownership, which may or may not be a laudable goal. Personally I take advantage of it and think it's not necessarily a bad thing, but wish it was more direct about what it's trying to do.
  - lotsofpulp 4y ago
    If a government wanted to encourage home ownership, it would either incentivize building more homes to bring down price, and/or give cash to people so they are able to buy. The latter option would require government taking from richer to give to poorer, or issuing new money, which is sort of the same by reducing purchasing power of money, The long term fixed rate mortgage is where no wealth gets redistributed today, but rather from future taxpayers or users of the currency.
    - ClumsyPilot 4y ago
      if government wants to encourage buying, it must make take private equity and wallstreet out of property speculation. They leave swaths of properties empty just for the purpose of land banking. Secondary step would be to make landlord-ing less attractive by giving tenants a lot of rights, naking them hard to evict, thank kind of thing. This would make houses less atractive as an investment asset. Lastly you could increase property taxes, again driving down atteactivenes of hiuses to investment. Beinging down price of houses is easy. The question is what do you do with all the people who bought a house for 500k and now its worth 250k and they are stuck

ericmcer 4y ago

So if you are a first time home-buyer who needs a loan to purchase a home you are going to get shafted on interest rates, but if you already own real estate you can either buy stuff cash or sell a property and defer capital gains to buy a new one. I struggle to see how raising interest rates helps the class that is most reliant on loans to even enter the market.

wwweston 4y ago
I'm not sure about this either. My guess is that there are two factors at work: 1) raising rates and otherwise making money more expensive encourages capital to do something else with their money than speculate on real estate cheaply, which was a pretty appealing option over the last 5-6 years (let alone the last 2). 2) it's a mistake to rely on interest rates alone to address issues here. There's a whole raft of policy issues that should be brought into play here: progressive taxation by ownership volume and vacation-rental usage, better interest breaks for first-time homebuyers, encourage owner restoration and discourage investor-flippers. BUT every other way of addressing the policy is actually harder politically, since one party sees inequality as feature-not-bug and will actively fight attempts to address it (especially if it represents a win for their opposition), and the other has both a tenuous hold on power and a coalition that may not be all on board.

bamboozled 4y ago

The problem is that due to inflation, the cost of living has sky rocketed too, at least in a lot of countries. This means your mortgage repayments aren't the only thing that has increased, so has absolutely everything else in your life. Look at Australia for example, they're predicting the already ridiculously high food prices to go even higher, up to 7-10% due to major flooding events this year. So your analysis kind of works, but it's not factoring in whether people feel ok about paying > $200k (AUD) or more for a house which isn't worth that much anymore (prices are going down already, many many people bought at the height of a bubble, due to FOMO), then having absolutely no money to do anything with their house to improve it (building costs are astronomical) and having no money for leisure or holidays, then you have high energy and school fees to add to all of that. In my opinion, this is what will start to drive more people to sell. It's not just the house prices, but it's the burden of being tied to such huge debt. Also money isn't so cheap right now, so it will slow down property speculation. Many people also bought houses thinking that if they don't like being so heavily leveraged they will just sell their property at a net gain. Not at a loss, this I think is starting to scare people. I'd say we'll see a lot of people at least consider downsizing in the near future.

duck 4y ago
Is there any data about downsizing? It almost seems impossible to do at some level (and I'm sure depending on the area) because of an extremely short supply of smaller houses these days. I could be wrong, but this seems like the last area to cut expenses on for most families.
- bombcar 4y ago
  You can sidesize - take an area of a few miles across, set your Zillow search to 3 bed or similar, and sort by price and then by sq ft.
kimburgess 4y ago
> So your analysis kind of works, but it's not factoring in whether people feel ok about paying > $200k (AUD) or more for a house... Australian here, $200k would be a dream! You're off by a factor of ~4.6: https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/total-value-dwellings/latest-release#mean-dwelling-price https://www.abs.gov.au/statistics/economy/price-indexes-and-.... Over the past few years the appreciation on housing has meant that for many people their shelter, and entirely non-productive asset, has outpaced their own earnings. For anyone not on that rocket ship, good luck.

scarface74 4y ago

> I'd prefer to rent out my house than sell it. Says someone who probably has never been a landlord. I would rather poke both of my eyes out while getting a rectal exam than ever be a landlord again.

bdcravens 4y ago

I locked in February on a 180-day lock: 3.25%. There were some documentation issues that I had to rely on a third-party (the IRS) to resolve, so I had to start looking elsewhere. Rocket Mortgage was able to lock me at 5.25% (around April/May) - this would cost me an additional $400 each month. (Fortunately the original lender was able to make to adjust what they were asking for - it wasn't a matter of not closing the loan, but it meant they had to hold it rather than selling it while the IRS gets their act together)