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So far the mortgage rates skyrocketing corresponds to an equivalent mortgage that is about 35% lower. Meaning that if you could previously afford a $1 million m

So far the mortgage rates skyrocketing corresponds to an equivalent mortgage that is about 35% lower. Meaning that if you could previously afford a $1 million mortgage, you can now only afford about a $650,000 mortgage with the same payment. If you don't see a corresponding price drop of 35% then it might be too early.

bpodgursky 4y ago
Does this assume 20% down? The higher the cash component on average, the less it matters. If it's a cash market (bay/Seattle/NYC), might be more resilient.
- Exmoor 4y ago
  Cash buyers are not complete idiots. If the mortgage-based buyers they were competing with a year ago have 35% less buying power than why would they spend money they don't need to? The market where I live (Seattle suburbs) has completely reversed in the last year. A year ago I was surprised if a house lasted more than a weekend, now I'm literally shocked when I see a house sell. I can think of two houses in my area I've seen with sold signs in the last couple months and there's dozens that have been sitting on the market for that time.
  - to11mtm 4y ago
    Cash buyers are -not- complete idiots, but there was (and still is) some portion of people who think that prices will at best plateau, and thus it's better to 'get in' early still. > A year ago I was surprised if a house lasted more than a weekend, now I'm literally shocked when I see a house sell. Around here it has cooled down but the market is still... volatile. Ironically I may or may not be 'up' in value compared to the start of this year. But my state has various taxes and insurance costs that have impacts on relative home value.
  - xt00 4y ago
    Yea likely many cash buyers will sit in a wait and see mode except for amazing properties (like waterfront that is being sold cheaper than expected etc) -- but the ability of the fed to drive housing prices down will probably be seen as a feature rather than a bug to many people -- so I would expect the fed will keep the high interest rates for 2-3 years. There were continual increases from 1977 to 1981 until finally things were reversed.. so interest rates being ~8% + for 3 years would seem cheap compared to the high interest rates of 1981 (hitting 18%). So seems likely housing prices will keep sliding for a while until some sort of equilibrium is found.
- tqi 4y ago
  I wonder if cash buyers really are that resilient. I assume most people who have that much in assets primarily have it in stocks (rather than actual cash), which have also dropped precipitously this year.
xeromal 4y ago
Is that from the low point of mortgage rates in late last year?
larrymyers 4y ago
There's been a lot of news coverage lately about how low inventory is going to continue to keep housing prices high, despite mortgages going up. Basically people with 2%-3% mortgages are going to sit tight, because they can no longer afford a comparable house were they to move. Low inventory means prices won't drop as much as people hope with rising interest rates. The only wild card here is what will happen with cash buyers, who aren't affected by mortgage rates.
- vinyl7 4y ago
  Inventory is already well on its way back to 2020 levels, and is exceeding 2019 levels in some areas. The "shortage" was caused by demand from extremely low interest rates, now that demand has died...the shortage is over. Not to mention, as we head into this recession and life/layoffs continue, people will be forced to sell if they can no longer cover their mortgage. https://twitter.com/RickPalaciosJr/status/1588688870094561282 https://twitter.com/RickPalaciosJr/status/158868887009456128... https://twitter.com/NewsLambert/status/1589036074441281536 https://twitter.com/NewsLambert/status/1589036074441281536 https://twitter.com/NewsLambert/status/1589034547697836032 https://twitter.com/NewsLambert/status/1589034547697836032
  - jjcon 4y ago
    3 cherry picked cities in the USA? Here is a better source that is national (USA): https://fred.stlouisfed.org/series/ACTLISCOUUS https://fred.stlouisfed.org/series/ACTLISCOUUS Listings are still very low compared to pre-pandemic levels not to mention by many metrics there was already a shortage before the pandemic stemming all the way back to the great recession. Some interesting reading: https://usafacts.org/articles/population-growth-has-outpaced-home-construction-for-20-years/ https://usafacts.org/articles/population-growth-has-outpaced... https://www.usatoday.com/story/money/2022/10/26/housing-market-worsens-mortgage-interest-rates/10588515002/ https://www.usatoday.com/story/money/2022/10/26/housing-mark... https://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2022/09/08/more-housing-is-coming-but-the-national-shortage-will-persist https://www.pewtrusts.org/en/research-and-analysis/blogs/sta... https://www.fanniemae.com/research-and-insights/perspectives/us-housing-shortage https://www.fanniemae.com/research-and-insights/perspectives...
pcurve 4y ago
Another way of looking at it... if you are taking out a $650,000 30 year 3% fixed loan, it is $2,740/month At the current rate of 7.5%, it's $4,545.
- x86_64Ubuntu 4y ago
  That really puts it into perspective.
  - csomar 4y ago
    The magic of compound interest over very long periods.
silisili 4y ago
I think one has to remember inflation, too. It's been, what, 10% for nearly 3 years? A 300k house in 2020, if inflated as such, would be 399k in 2023. For that reason, I hesitate to predict a huge downward trend in house prices. In this environment, prices holding steady would be a downward trend.
- staticman2 4y ago
  Inflation has been nowhere close to 10 percent for 3 years. You can determine the adjusted rate here: https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=100&year1=201909&year2=202209 https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=100&year1=2019...
deleted 4y ago
[deleted]
faangiq 4y ago
Of course, such a drop vaporizes every institutional investor in the world. So …

bpodgursky 4y ago

Does this assume 20% down? The higher the cash component on average, the less it matters. If it's a cash market (bay/Seattle/NYC), might be more resilient.

Exmoor 4y ago
Cash buyers are not complete idiots. If the mortgage-based buyers they were competing with a year ago have 35% less buying power than why would they spend money they don't need to? The market where I live (Seattle suburbs) has completely reversed in the last year. A year ago I was surprised if a house lasted more than a weekend, now I'm literally shocked when I see a house sell. I can think of two houses in my area I've seen with sold signs in the last couple months and there's dozens that have been sitting on the market for that time.
- to11mtm 4y ago
  Cash buyers are -not- complete idiots, but there was (and still is) some portion of people who think that prices will at best plateau, and thus it's better to 'get in' early still. > A year ago I was surprised if a house lasted more than a weekend, now I'm literally shocked when I see a house sell. Around here it has cooled down but the market is still... volatile. Ironically I may or may not be 'up' in value compared to the start of this year. But my state has various taxes and insurance costs that have impacts on relative home value.
- xt00 4y ago
  Yea likely many cash buyers will sit in a wait and see mode except for amazing properties (like waterfront that is being sold cheaper than expected etc) -- but the ability of the fed to drive housing prices down will probably be seen as a feature rather than a bug to many people -- so I would expect the fed will keep the high interest rates for 2-3 years. There were continual increases from 1977 to 1981 until finally things were reversed.. so interest rates being ~8% + for 3 years would seem cheap compared to the high interest rates of 1981 (hitting 18%). So seems likely housing prices will keep sliding for a while until some sort of equilibrium is found.
tqi 4y ago
I wonder if cash buyers really are that resilient. I assume most people who have that much in assets primarily have it in stocks (rather than actual cash), which have also dropped precipitously this year.

xeromal 4y ago

Is that from the low point of mortgage rates in late last year?

larrymyers 4y ago

There's been a lot of news coverage lately about how low inventory is going to continue to keep housing prices high, despite mortgages going up. Basically people with 2%-3% mortgages are going to sit tight, because they can no longer afford a comparable house were they to move. Low inventory means prices won't drop as much as people hope with rising interest rates. The only wild card here is what will happen with cash buyers, who aren't affected by mortgage rates.

vinyl7 4y ago
Inventory is already well on its way back to 2020 levels, and is exceeding 2019 levels in some areas. The "shortage" was caused by demand from extremely low interest rates, now that demand has died...the shortage is over. Not to mention, as we head into this recession and life/layoffs continue, people will be forced to sell if they can no longer cover their mortgage. https://twitter.com/RickPalaciosJr/status/1588688870094561282 https://twitter.com/RickPalaciosJr/status/158868887009456128... https://twitter.com/NewsLambert/status/1589036074441281536 https://twitter.com/NewsLambert/status/1589036074441281536 https://twitter.com/NewsLambert/status/1589034547697836032 https://twitter.com/NewsLambert/status/1589034547697836032
- jjcon 4y ago
  3 cherry picked cities in the USA? Here is a better source that is national (USA): https://fred.stlouisfed.org/series/ACTLISCOUUS https://fred.stlouisfed.org/series/ACTLISCOUUS Listings are still very low compared to pre-pandemic levels not to mention by many metrics there was already a shortage before the pandemic stemming all the way back to the great recession. Some interesting reading: https://usafacts.org/articles/population-growth-has-outpaced-home-construction-for-20-years/ https://usafacts.org/articles/population-growth-has-outpaced... https://www.usatoday.com/story/money/2022/10/26/housing-market-worsens-mortgage-interest-rates/10588515002/ https://www.usatoday.com/story/money/2022/10/26/housing-mark... https://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2022/09/08/more-housing-is-coming-but-the-national-shortage-will-persist https://www.pewtrusts.org/en/research-and-analysis/blogs/sta... https://www.fanniemae.com/research-and-insights/perspectives/us-housing-shortage https://www.fanniemae.com/research-and-insights/perspectives...

pcurve 4y ago

Another way of looking at it... if you are taking out a $650,000 30 year 3% fixed loan, it is $2,740/month At the current rate of 7.5%, it's $4,545.

x86_64Ubuntu 4y ago
That really puts it into perspective.
- csomar 4y ago
  The magic of compound interest over very long periods.

silisili 4y ago

I think one has to remember inflation, too. It's been, what, 10% for nearly 3 years? A 300k house in 2020, if inflated as such, would be 399k in 2023. For that reason, I hesitate to predict a huge downward trend in house prices. In this environment, prices holding steady would be a downward trend.

staticman2 4y ago
Inflation has been nowhere close to 10 percent for 3 years. You can determine the adjusted rate here: https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=100&year1=201909&year2=202209 https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=100&year1=2019...

deleted 4y ago

[deleted]

faangiq 4y ago

Of course, such a drop vaporizes every institutional investor in the world. So …