6 ms·

This will pressure prices down presumably which is a good thing for cash buyers but basically no one else.

by bfrog 4y ago

mindslight 4y ago
It's a good thing for everyone. Even if you have a mortgage, when the principal is lower you can pay it off sooner by paying more than the minimum. This inflated asset bubble is strangling our society, especially for housing.
- bushbaba 4y ago
  If home values decline by 50%. So do property tax revenues. You’d have stated needing to layoff a large portion of their police and education staff.
  - mindslight 4y ago
    That's not at all how real estate valuations work in my experience. In times of asset inflation, they lag to cut homeowners a break. So much so that other tax authorities outright reject using municipal valuations on their filings. And municipal valuations never go down, barring someone paying for an independent appraisal and going through the abatement process. If real estate values corrected by 50%, then the people who really complained might be able to get their taxes reduced by 10%. But even that's doubtful.
    - lotsofpulp 4y ago
      The government can also just increase property tax rates if property values go down. Instead of 0.75%, make it 1%, or 2%.
      - bushbaba 4y ago
        They can’t in California. Not without voter approval. Same is true in many states.
  - nisegami 4y ago
    Another win for land-value taxes over property taxes.
  - not_the_fda 4y ago
    Thats not how property taxes usually work. Most municipalities set a millage rate based on how much revenue they want. If property values decrease, the millage rate goes up. If all property went down 30% the millage rate is adjusted accordingly to hit the revenue target.
blhack 4y ago
Which means more supply flowing into the hands of institutional investors.
- deleted 4y ago
  [deleted]
njdvndsjkvn 4y ago
Retric 4y ago
Post correction it makes homes more affordable as it lowers the down payment requirement. It also helps people build equity after a refinance at eventual lower interest trades etc. There are a bunch of effects that make very low long term interest rates surprisingly bad for long term economic growth.
lotsofpulp 4y ago
Why only cash buyers? Even if I am borrowing money to pay for something, I would rather pay less than more.
- ltbarcly3 4y ago
  This is correct, you will pay more to service the loan but only until you can refinance it. If you pay more in a low interest rate regime you have no way to improve your situation, and no way to sell if you need to.
  - _huayra_ 4y ago
    Yes, I would rather pay usurious rates with a commensurately low price. Even though it would be terrible basically having the vast majority of my monthly payment going purely to interest for a long time, it's possible to: - refi at a lower rate in the future - sell the house without having to take a huge loss compared to low-% bagholders
- mminer237 4y ago
  Because you would theoretically be paying the same amount, just paying it as interest instead of principal. It's not practically that big of a deal, but it does mean you would have less equity. If you had to sell it, you would get much less back, and you might have more taxable gain if you don't qualify for §121 exclusion.
  - lotsofpulp 4y ago
    > If you had to sell it, you would get much less back, and you might have more taxable gain if you don't qualify for §121 exclusion. This is a separate calculation of how much one can sell their house for relative to purchase price, unrelated to preferring low interest rate/high purchase price or high interest rate/low purchase price. But based on decades of interest rate history, it would seem prudent to bet the Fed will lower rates again in a few years and you can refinance to a lower interest rate.
    - 4y ago
jacv 4y ago
I would think this could help with people trying to buy their first place. I think a fair amount of people - particularly those in HCOL cities - could afford monthly payments that are on the high side, but saving for a 20% deposit has been more difficult because of how high prices have been (ie, stuck in a rent cycle of only saving a bit because of how high rent is and so on).
- bushbaba 4y ago
  Same markets offer 5% or 0% down loans. Financing isn’t the problem it’s the monthly cost. Rent is cheaper than owning in Seattle, LA, and SF metro areas for a large portion of the housing stock.
  - jacv 4y ago
    I don’t think I agree with you. I don’t know of a lender offering 0% down loans for people in those markets (the only thing I could find was VA loans or USDA), but could be wrong. For a large portion of people, monthly cost is not the big problem. A 20% down payment on an median home price of $850k (Seattle), $1M (LA), $1.3M (SF) (all these taken from google’s results) is because it’s very hard to save that much money when you’re paying median rent of $2.7k (Seattle), $3.3k (LA), or $4k (SF) (Zumper, 2bd apartment). All else equal, I think a lot of people when trying to buy for the first time would prefer lower house purchase price with higher interest rate because of saving for a down payment vs the same house at a higher price and lower interest rate.
dont__panic 4y ago
It's also good for buyers with low net worth, but high yearly income. I got into the tech world 5 years ago, fresh out of college. Many of my peers can afford monthly payments of $2-3k... but getting your hands on $100k cash for a 20% down payment takes time, even at decent income levels.
- tashoecraft 4y ago
  I've been looking at mortgages over the past couple of months, and putting 20% down has near no effect on my potential monthly payments.
  - lotsofpulp 4y ago
    The difference for most conforming loans (sold to US government) is that less than 20% down payment requires property mortgage insurance (PMI), which should add to monthly payments compared to a 20% down mortgage. Are you seeing PMI costs? Or are they being waived for you? Or is it a non conforming loan that does not require PMI? There’s a bunch of other possible reasons on this website. https://www.redfin.com/blog/what-is-pmi-insurance/ https://www.redfin.com/blog/what-is-pmi-insurance/
  - margalabargala 4y ago
    Based on what numbers? At a 6.6% loan, putting down 5% rather than 20% will increase your monthly payment by over 25%, on interest alone, ignoring PMI.
rossdavidh 4y ago
If it causes real estate to be seen as an investment unlikely to appreciate, whereas higher interest rates make bonds more attractive, then it could cause big money to rotate out of real estate and into other assets whose rate of return is proportional to the interest rates. When it happens, that will be a good thing. But, a lot of pain between here and there.

This will pressure prices down presumably which is a good thing for cash buyers but basically no one else.

by bfrog 4y ago

This will pressure prices down presumably which is a good thing for cash buyers but basically no one else.

It's a good thing for everyone. Even if you have a mortgage, when the principal is lower you can pay it off sooner by paying more than the minimum. This inflated asset bubble is strangling our society, especially for housing.

bushbaba 4y ago
If home values decline by 50%. So do property tax revenues. You’d have stated needing to layoff a large portion of their police and education staff.
- mindslight 4y ago
  That's not at all how real estate valuations work in my experience. In times of asset inflation, they lag to cut homeowners a break. So much so that other tax authorities outright reject using municipal valuations on their filings. And municipal valuations never go down, barring someone paying for an independent appraisal and going through the abatement process. If real estate values corrected by 50%, then the people who really complained might be able to get their taxes reduced by 10%. But even that's doubtful.
  - lotsofpulp 4y ago
    The government can also just increase property tax rates if property values go down. Instead of 0.75%, make it 1%, or 2%.
    - bushbaba 4y ago
      They can’t in California. Not without voter approval. Same is true in many states.
- nisegami 4y ago
  Another win for land-value taxes over property taxes.
- not_the_fda 4y ago
  Thats not how property taxes usually work. Most municipalities set a millage rate based on how much revenue they want. If property values decrease, the millage rate goes up. If all property went down 30% the millage rate is adjusted accordingly to hit the revenue target.

blhack 4y ago

Which means more supply flowing into the hands of institutional investors.

deleted 4y ago
[deleted]

njdvndsjkvn 4y ago

Retric 4y ago

Post correction it makes homes more affordable as it lowers the down payment requirement. It also helps people build equity after a refinance at eventual lower interest trades etc. There are a bunch of effects that make very low long term interest rates surprisingly bad for long term economic growth.

lotsofpulp 4y ago

Why only cash buyers? Even if I am borrowing money to pay for something, I would rather pay less than more.

ltbarcly3 4y ago
This is correct, you will pay more to service the loan but only until you can refinance it. If you pay more in a low interest rate regime you have no way to improve your situation, and no way to sell if you need to.
- _huayra_ 4y ago
  Yes, I would rather pay usurious rates with a commensurately low price. Even though it would be terrible basically having the vast majority of my monthly payment going purely to interest for a long time, it's possible to: - refi at a lower rate in the future - sell the house without having to take a huge loss compared to low-% bagholders
mminer237 4y ago
Because you would theoretically be paying the same amount, just paying it as interest instead of principal. It's not practically that big of a deal, but it does mean you would have less equity. If you had to sell it, you would get much less back, and you might have more taxable gain if you don't qualify for §121 exclusion.
- lotsofpulp 4y ago
  > If you had to sell it, you would get much less back, and you might have more taxable gain if you don't qualify for §121 exclusion. This is a separate calculation of how much one can sell their house for relative to purchase price, unrelated to preferring low interest rate/high purchase price or high interest rate/low purchase price. But based on decades of interest rate history, it would seem prudent to bet the Fed will lower rates again in a few years and you can refinance to a lower interest rate.
  - 4y ago

jacv 4y ago

I would think this could help with people trying to buy their first place. I think a fair amount of people - particularly those in HCOL cities - could afford monthly payments that are on the high side, but saving for a 20% deposit has been more difficult because of how high prices have been (ie, stuck in a rent cycle of only saving a bit because of how high rent is and so on).

bushbaba 4y ago
Same markets offer 5% or 0% down loans. Financing isn’t the problem it’s the monthly cost. Rent is cheaper than owning in Seattle, LA, and SF metro areas for a large portion of the housing stock.
- jacv 4y ago
  I don’t think I agree with you. I don’t know of a lender offering 0% down loans for people in those markets (the only thing I could find was VA loans or USDA), but could be wrong. For a large portion of people, monthly cost is not the big problem. A 20% down payment on an median home price of $850k (Seattle), $1M (LA), $1.3M (SF) (all these taken from google’s results) is because it’s very hard to save that much money when you’re paying median rent of $2.7k (Seattle), $3.3k (LA), or $4k (SF) (Zumper, 2bd apartment). All else equal, I think a lot of people when trying to buy for the first time would prefer lower house purchase price with higher interest rate because of saving for a down payment vs the same house at a higher price and lower interest rate.

dont__panic 4y ago

It's also good for buyers with low net worth, but high yearly income. I got into the tech world 5 years ago, fresh out of college. Many of my peers can afford monthly payments of $2-3k... but getting your hands on $100k cash for a 20% down payment takes time, even at decent income levels.

tashoecraft 4y ago
I've been looking at mortgages over the past couple of months, and putting 20% down has near no effect on my potential monthly payments.
- lotsofpulp 4y ago
  The difference for most conforming loans (sold to US government) is that less than 20% down payment requires property mortgage insurance (PMI), which should add to monthly payments compared to a 20% down mortgage. Are you seeing PMI costs? Or are they being waived for you? Or is it a non conforming loan that does not require PMI? There’s a bunch of other possible reasons on this website. https://www.redfin.com/blog/what-is-pmi-insurance/ https://www.redfin.com/blog/what-is-pmi-insurance/
- margalabargala 4y ago
  Based on what numbers? At a 6.6% loan, putting down 5% rather than 20% will increase your monthly payment by over 25%, on interest alone, ignoring PMI.

rossdavidh 4y ago

If it causes real estate to be seen as an investment unlikely to appreciate, whereas higher interest rates make bonds more attractive, then it could cause big money to rotate out of real estate and into other assets whose rate of return is proportional to the interest rates. When it happens, that will be a good thing. But, a lot of pain between here and there.