3 ms·

I don't think it's that great of news. If you're waiting for something like a 10% or 20% drop in prices (remember that this varies and is market dependent) you'

I don't think it's that great of news. If you're waiting for something like a 10% or 20% drop in prices (remember that this varies and is market dependent) you're probably going to keep waiting. The problem here is that when interest rates go up, those who locked in historically low interest rates are going to be less likely to sell their homes. Those who have to sell their homes aren't going to reduce the price by 20% just to sell, more like they'll sell at current market prices (which are still way up) or just sit on the house instead of taking a loss or too large of a discount. On top of that, higher interest rates mean it's more expensive to build new homes. So you get less supply. My mental model for home prices is that there are some general fluctuations and such but the overall market trend will continue to be neutral to positive and rates will grow as well. The "rates are high so prices must come down" mechanic is far too simplistic and unrealistic.

heliostatic 4y ago
I don't think the OP was counting on prices to drop; rather, they were waiting for others to be priced out (hence higher supply for them). It's still debatable whether folks will sell in this kind of market, but at least for this buyer higher rates mean less competition on the buyer side.
- ericmay 4y ago
  The only scenario (I think) where this works is an all-cash purchase so you aren't paying the higher rates so it's not a concern. Waiting for others to be priced out seems like a weird thing to do because you're just making the purchase more expensive for yourself since prices stay the same or go up and rates go up.
kevinventullo 4y ago
As someone who bought in early 2022 just before interest rates spiked, I would in fact only sell at a significant premium at this point. The reason being that if I currently owe $X on my low fixed rate 30-year mortgage, the true mark-to-market value of that payment schedule at current interest rates is, I dunno, call it 0.6* $X. To my understanding, selling now means I’d have to pay off the entire mortgage completely with the proceeds. As far as I’m concerned, that essentially means throwing away 0.4*$X.
- dragonwriter 4y ago
  If you want to use asterisks literally on HN, you need to escape them.
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clean_send 4y ago
As a potential home buyer right now, it's less about prices drop but more about homes not going over asking. When you hit this situation you have to cover the difference. In some cases this could be $30-50k which depending on your downpayment could greatly reduce your buying power. During the pandemic with low interest rates would yield anywhere from 10-20 over asking offers on a home. Now days homes are generally selling close to asking and occasionally you can even get a home under. Yes the supply is lower but people will always ned to sell and it's nice having the buyer pool be smaller and less competitive.
guntars 4y ago
This is a correct, but incomplete take that I see a lot in response to the "market is going to crash, yay!" comments. It's incomplete because it assumes that every housing unit in the country is owned by a single family and, if sold, would have to be replaced by another one. These are owner occupied primary residences which are 70-80% of the market, depending on who you ask. The remainder consists of second homes and investment properties which will get sold, if they don't make financial sense anymore, for example, when short or long term rental income drops which is already happening. Overall, it's possible for the prices to drop in the total market even if the primary residence owners swear that they will take their 3% mortgage to their grave.
- frankc 4y ago
  Thats a good point but also it means you will see particular areas be more dramatically affected by this. For instance, I have noticed big price buts in some ski areas where I have though about buying a small second home or condo.
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heliostatic 4y ago

I don't think the OP was counting on prices to drop; rather, they were waiting for others to be priced out (hence higher supply for them). It's still debatable whether folks will sell in this kind of market, but at least for this buyer higher rates mean less competition on the buyer side.

ericmay 4y ago
The only scenario (I think) where this works is an all-cash purchase so you aren't paying the higher rates so it's not a concern. Waiting for others to be priced out seems like a weird thing to do because you're just making the purchase more expensive for yourself since prices stay the same or go up and rates go up.

kevinventullo 4y ago

As someone who bought in early 2022 just before interest rates spiked, I would in fact only sell at a significant premium at this point. The reason being that if I currently owe $X on my low fixed rate 30-year mortgage, the true mark-to-market value of that payment schedule at current interest rates is, I dunno, call it 0.6* $X. To my understanding, selling now means I’d have to pay off the entire mortgage completely with the proceeds. As far as I’m concerned, that essentially means throwing away 0.4*$X.

dragonwriter 4y ago
If you want to use asterisks literally on HN, you need to escape them.

deleted 4y ago

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clean_send 4y ago

As a potential home buyer right now, it's less about prices drop but more about homes not going over asking. When you hit this situation you have to cover the difference. In some cases this could be $30-50k which depending on your downpayment could greatly reduce your buying power. During the pandemic with low interest rates would yield anywhere from 10-20 over asking offers on a home. Now days homes are generally selling close to asking and occasionally you can even get a home under. Yes the supply is lower but people will always ned to sell and it's nice having the buyer pool be smaller and less competitive.

guntars 4y ago

This is a correct, but incomplete take that I see a lot in response to the "market is going to crash, yay!" comments. It's incomplete because it assumes that every housing unit in the country is owned by a single family and, if sold, would have to be replaced by another one. These are owner occupied primary residences which are 70-80% of the market, depending on who you ask. The remainder consists of second homes and investment properties which will get sold, if they don't make financial sense anymore, for example, when short or long term rental income drops which is already happening. Overall, it's possible for the prices to drop in the total market even if the primary residence owners swear that they will take their 3% mortgage to their grave.

frankc 4y ago
Thats a good point but also it means you will see particular areas be more dramatically affected by this. For instance, I have noticed big price buts in some ski areas where I have though about buying a small second home or condo.

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