6 ms·

You don’t start from scratch. You sell your existing house, which has benefited from inflation, then buy somewhere with the same mortgage payment over the same

You don’t start from scratch. You sell your existing house, which has benefited from inflation, then buy somewhere with the same mortgage payment over the same remaining duration you had if you choose not to trade up. Yes there are significant transaction costs but it isn’t as though you are starting again with your housing equity.

arka2147483647 3y ago
If you move from not-so-prosperous place to where its booming, there is no way you get equivalent home for the same price
pcbro141 3y ago
Interest rates.
jnosCo 3y ago
Interest rates doubling over the past year change the math on this. For instance, to keep my same mortgage payment, even with significant equity, i could only afford what I paid for the house originally, which would be a significant downgrade in today's market.
- subsubzero 3y ago
  agree, what really makes me upset is how housing prices in certain areas has not gone down at all given that rates are double what they were a year or 2 ago. The un-affordability is beyond reason.
  - lotsofpulp 3y ago
    It is just supply and demand. Supply is half of what it used to be. https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgtCkvoqzCIBrw6J-bq9cyVfNXj9LSXF3-eaDhJEEvrB7CnbDEoqoEX-CkKLZxnZN1HRS4GosRSLBxe4nZEIgrYClyIecXO0dDman9qa2OQ6C1bLNJleTg_nzkdHD9bwiHVNTz3VH9FwL51vZgNEIvSr3LxFyUKCyGf51iWKkq3GCkQeOGhaA/s1086/AltosYoYMay152023.PNG https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg... https://www.calculatedriskblog.com/2023/05/housing-may-15th-weekly-update.html https://www.calculatedriskblog.com/2023/05/housing-may-15th-... The supply demand situation is probably even worse in high demand areas.
  - rightbyte 3y ago
    Prices are sticky and people are way more emotional when it comes pricing their home than other things. Those who refuse to sell now are just keeping up the price for the ones who do sell. If the price is not sustainable ot will go down.
- SoftTalker 3y ago
  > even with significant equity Yep, and if you fell for one of your lender's incessant pitches on borrowing on your equity or refinancing and taking equity out, you're really locked in to your situation. I'm very convinced that most people doing home equity loans or refis with cash out don't understand how much they are backsliding when they do that.
  - sokoloff 3y ago
    I think that depends on what they did with the cash. If they invested it in the S&P 500, that was generally a very good trade. If they turned it into new cars and expensive vacations, well, that was hopefully something that they really enjoyed, because those are things that are even more expensive when financed.
- benjaminwootton 3y ago
  Lots of people have made that point, but I’ll respond here. Yes this is true, but only at this point in time when interest rates have shot up from historically low. Most of the time this won’t be the case, and soon this effect could work in the other way in that you could move to a house of similar value for a lower cost if interest rates come down. And the 30 year fixed rate mortgage is unique to the US. Here in the UK, we only fix for 2-5 years typically. So easy on the downvotes!
  - bobthepanda 3y ago
    Do people expect interest rates to lower again any time soon? Inflation just recently started trending down. Right now US supply has shrunk so prices don’t seem to be declining enough to offset the rise in interest rates; the monthly payments for anything in the market are still eye-watering even factoring in price declines.
    - nonethewiser 3y ago
      Well if you expect them to rise or stay the same for a while then now is actually not a bad time to buy.
  - nradov 3y ago
    It is actually pretty much the case for most US homeowners. Everyone I know refinanced their mortgages when interest rates were lower. I got a 2.874% 30 year fixed rate mortgage in 2021 which was a great deal, but now I am essentially stuck here. There's no way I can afford to move. Existing home sales volume is way down. https://www.wsj.com/articles/low-mortgage-rates-home-sales-low-supply-899aab29 https://www.wsj.com/articles/low-mortgage-rates-home-sales-l... https://ycharts.com/indicators/us_existing_home_sales https://ycharts.com/indicators/us_existing_home_sales The situation may be different in other countries.
    - throwaway2037 3y ago
      You wrote: There's no way I can afford to move. You are lucky to win the housing lottery. Congrats! Can you imagine being a young couple (20s 30s) trying to buy your first home the US right now? Hopeless. Wait a few years as an oppressed renter!
- nonethewiser 3y ago
  That assumes you started your mortgage in roughly the last 10-15 years in the US or somewhere else with the same rate history. Average rates before then were consistently higher. https://fred.stlouisfed.org/series/MORTGAGE30US https://fred.stlouisfed.org/series/MORTGAGE30US If you started your mortgage before then its a neutral to positive rate-wise.
  - giaour 3y ago
    Many holders of higher rate mortgages refinanced during the last 10-15 years, too.
mediaman 3y ago
You are generally right, but currently most homeowners have mortgage debt at rates far below market, so they could afford much less house than before (if they need financing).
substation13 3y ago
If the prices have significantly risen since you purchased (as they have for most buyers) then moving even to the same quality of house makes you a net buyer because you need to take on more financing. Remember, the day you buy a house, you are no richer. This is because the asset (house) is offset by the liability (the mortgage).
- benjaminwootton 3y ago
  I don’t understand. I buy a house with a $300k mortgage. The price rises to $500k. I then sell the house and buy another for $500k, rolling my $200k equity and $300k mortgage for no net change. If you are trading up then yes, the more expensive house rose faster than your house. But that’s the case anytime you move and not unique to a job relocation.
  - nradov 3y ago
    Nope, there is a huge net change because interest rates have increased. Mortgage rates bottomed out in 2020 at about 2.65%, so the monthly payment on a $300K mortgage was only $1209. Now at 5.87% the payment would be $1774. https://fred.stlouisfed.org/series/MORTGAGE30US https://fred.stlouisfed.org/series/MORTGAGE30US
    - woobar 3y ago
      Why are you comparing to the absolute minimum? Didn't people use to have mortgages before 2020? My first house was close to $300K, mortgage was 6.5%. No one was crying about this back then.
      - nradov 3y ago
        I am comparing to the absolute minimum because most homeowners with decent credit ratings refinanced their loans a couple years ago near the minimum. Now they can't afford to sell their current homes and buy in a different area because the monthly payments would be unaffordable (unless they buy in a much cheaper area or a much smaller home). I don't think anyone is crying about it but this is reducing labor mobility and slowing down economic growth. It's one of the unintended consequences of the Federal Reserve raising interest rates due to inflation.
balls187 3y ago
That isn't even remotely true here in the Seattle area. Even if you have significant equity in your house, the supply of "better" comparable homes is sparse at best. And likely your existing mortgage is at a rate 1/2 of the current rates.
chimeracoder 3y ago
> You don’t start from scratch. You sell your existing house, which has benefited from inflation, then buy somewhere with the same mortgage payment over the same remaining duration you had if you choose not to trade up. In California, Prop 13 means that property taxes are essentially fixed and nonincreasing at the time you purchase your house. This is sometimes used as a defense of Prop 13, but all it really means is that any increase in total tax burden has to fall disproportionately (in fact, almost exclusively) on new purchasers and their tenants. Forcing someone to relocate means giving up that privileged tax status and starting over "from scratch".
- KerrAvon 3y ago
  There is one limited exception: once you’re 55, you can transfer your existing property tax base (but only if the county you’re moving to allows it), but only once. This is a ridiculous system, and there really needs to be property tax reform in CA, but it needs to be done in such a way that it doesn’t fuck over existing property owners, which is really difficult.
  - chimeracoder 3y ago
    > but it needs to be done in such a way that it doesn’t fuck over existing property owners This is impossible. The current system is such an extreme and unsustainable transfer of wealth towards property owners that there's no way to create a sustainable (let alone equitable) system that doesn't involve current property owners giving something up.
  - triceratops 3y ago
    End Prop 13 protections for all property purchases. Stop grandfathering in existing property when it's inherited. It'll really fuck over new buyers in the short-term. But it's one way to get less resistance from existing owners - who are largely voters. And the skyrocketing property taxes on new purchases might put a damper on prices.
    - nradov 3y ago
gwbas1c 3y ago
> You sell your existing house, which has benefited from inflation, then buy somewhere with the same mortgage payment over the same remaining duration you had if you choose not to trade up Are you living under a rock? Mortgage rates going up make that impossible.
ryanSrich 3y ago
> You sell your existing house, which has benefited from inflation Your new interest rate is going to absolutely demolish any inflation benefit your current house has. I don't think people really understand how bad higher interest rates are when there's a housing shortage. - A $500k house at 3% is $2,100/month. - A $500k house at 7.5% is $3,500/month - That's a difference of nearly $17,000/year The house that was $500k at 3% in 2021 is still $500k at 7.5% in 2023. Housing prices haven't budged. We'd need to see a 20-40% reduction in prices across the board to stabilize affordability, but that won't happen because there's too much demand.

arka2147483647 3y ago

If you move from not-so-prosperous place to where its booming, there is no way you get equivalent home for the same price

pcbro141 3y ago

Interest rates.

jnosCo 3y ago

Interest rates doubling over the past year change the math on this. For instance, to keep my same mortgage payment, even with significant equity, i could only afford what I paid for the house originally, which would be a significant downgrade in today's market.

subsubzero 3y ago
agree, what really makes me upset is how housing prices in certain areas has not gone down at all given that rates are double what they were a year or 2 ago. The un-affordability is beyond reason.
- lotsofpulp 3y ago
  It is just supply and demand. Supply is half of what it used to be. https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgtCkvoqzCIBrw6J-bq9cyVfNXj9LSXF3-eaDhJEEvrB7CnbDEoqoEX-CkKLZxnZN1HRS4GosRSLBxe4nZEIgrYClyIecXO0dDman9qa2OQ6C1bLNJleTg_nzkdHD9bwiHVNTz3VH9FwL51vZgNEIvSr3LxFyUKCyGf51iWKkq3GCkQeOGhaA/s1086/AltosYoYMay152023.PNG https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg... https://www.calculatedriskblog.com/2023/05/housing-may-15th-weekly-update.html https://www.calculatedriskblog.com/2023/05/housing-may-15th-... The supply demand situation is probably even worse in high demand areas.
- rightbyte 3y ago
  Prices are sticky and people are way more emotional when it comes pricing their home than other things. Those who refuse to sell now are just keeping up the price for the ones who do sell. If the price is not sustainable ot will go down.
SoftTalker 3y ago
> even with significant equity Yep, and if you fell for one of your lender's incessant pitches on borrowing on your equity or refinancing and taking equity out, you're really locked in to your situation. I'm very convinced that most people doing home equity loans or refis with cash out don't understand how much they are backsliding when they do that.
- sokoloff 3y ago
  I think that depends on what they did with the cash. If they invested it in the S&P 500, that was generally a very good trade. If they turned it into new cars and expensive vacations, well, that was hopefully something that they really enjoyed, because those are things that are even more expensive when financed.
benjaminwootton 3y ago
Lots of people have made that point, but I’ll respond here. Yes this is true, but only at this point in time when interest rates have shot up from historically low. Most of the time this won’t be the case, and soon this effect could work in the other way in that you could move to a house of similar value for a lower cost if interest rates come down. And the 30 year fixed rate mortgage is unique to the US. Here in the UK, we only fix for 2-5 years typically. So easy on the downvotes!
- bobthepanda 3y ago
  Do people expect interest rates to lower again any time soon? Inflation just recently started trending down. Right now US supply has shrunk so prices don’t seem to be declining enough to offset the rise in interest rates; the monthly payments for anything in the market are still eye-watering even factoring in price declines.
  - nonethewiser 3y ago
    Well if you expect them to rise or stay the same for a while then now is actually not a bad time to buy.
- nradov 3y ago
  It is actually pretty much the case for most US homeowners. Everyone I know refinanced their mortgages when interest rates were lower. I got a 2.874% 30 year fixed rate mortgage in 2021 which was a great deal, but now I am essentially stuck here. There's no way I can afford to move. Existing home sales volume is way down. https://www.wsj.com/articles/low-mortgage-rates-home-sales-low-supply-899aab29 https://www.wsj.com/articles/low-mortgage-rates-home-sales-l... https://ycharts.com/indicators/us_existing_home_sales https://ycharts.com/indicators/us_existing_home_sales The situation may be different in other countries.
  - throwaway2037 3y ago
    You wrote: There's no way I can afford to move. You are lucky to win the housing lottery. Congrats! Can you imagine being a young couple (20s 30s) trying to buy your first home the US right now? Hopeless. Wait a few years as an oppressed renter!
nonethewiser 3y ago
That assumes you started your mortgage in roughly the last 10-15 years in the US or somewhere else with the same rate history. Average rates before then were consistently higher. https://fred.stlouisfed.org/series/MORTGAGE30US https://fred.stlouisfed.org/series/MORTGAGE30US If you started your mortgage before then its a neutral to positive rate-wise.
- giaour 3y ago
  Many holders of higher rate mortgages refinanced during the last 10-15 years, too.

mediaman 3y ago

You are generally right, but currently most homeowners have mortgage debt at rates far below market, so they could afford much less house than before (if they need financing).

substation13 3y ago

If the prices have significantly risen since you purchased (as they have for most buyers) then moving even to the same quality of house makes you a net buyer because you need to take on more financing. Remember, the day you buy a house, you are no richer. This is because the asset (house) is offset by the liability (the mortgage).

benjaminwootton 3y ago
I don’t understand. I buy a house with a $300k mortgage. The price rises to $500k. I then sell the house and buy another for $500k, rolling my $200k equity and $300k mortgage for no net change. If you are trading up then yes, the more expensive house rose faster than your house. But that’s the case anytime you move and not unique to a job relocation.
- nradov 3y ago
  Nope, there is a huge net change because interest rates have increased. Mortgage rates bottomed out in 2020 at about 2.65%, so the monthly payment on a $300K mortgage was only $1209. Now at 5.87% the payment would be $1774. https://fred.stlouisfed.org/series/MORTGAGE30US https://fred.stlouisfed.org/series/MORTGAGE30US
  - woobar 3y ago
    Why are you comparing to the absolute minimum? Didn't people use to have mortgages before 2020? My first house was close to $300K, mortgage was 6.5%. No one was crying about this back then.
    - nradov 3y ago
      I am comparing to the absolute minimum because most homeowners with decent credit ratings refinanced their loans a couple years ago near the minimum. Now they can't afford to sell their current homes and buy in a different area because the monthly payments would be unaffordable (unless they buy in a much cheaper area or a much smaller home). I don't think anyone is crying about it but this is reducing labor mobility and slowing down economic growth. It's one of the unintended consequences of the Federal Reserve raising interest rates due to inflation.

balls187 3y ago

That isn't even remotely true here in the Seattle area. Even if you have significant equity in your house, the supply of "better" comparable homes is sparse at best. And likely your existing mortgage is at a rate 1/2 of the current rates.

chimeracoder 3y ago

> You don’t start from scratch. You sell your existing house, which has benefited from inflation, then buy somewhere with the same mortgage payment over the same remaining duration you had if you choose not to trade up. In California, Prop 13 means that property taxes are essentially fixed and nonincreasing at the time you purchase your house. This is sometimes used as a defense of Prop 13, but all it really means is that any increase in total tax burden has to fall disproportionately (in fact, almost exclusively) on new purchasers and their tenants. Forcing someone to relocate means giving up that privileged tax status and starting over "from scratch".

KerrAvon 3y ago
There is one limited exception: once you’re 55, you can transfer your existing property tax base (but only if the county you’re moving to allows it), but only once. This is a ridiculous system, and there really needs to be property tax reform in CA, but it needs to be done in such a way that it doesn’t fuck over existing property owners, which is really difficult.
- chimeracoder 3y ago
  > but it needs to be done in such a way that it doesn’t fuck over existing property owners This is impossible. The current system is such an extreme and unsustainable transfer of wealth towards property owners that there's no way to create a sustainable (let alone equitable) system that doesn't involve current property owners giving something up.
- triceratops 3y ago
  End Prop 13 protections for all property purchases. Stop grandfathering in existing property when it's inherited. It'll really fuck over new buyers in the short-term. But it's one way to get less resistance from existing owners - who are largely voters. And the skyrocketing property taxes on new purchases might put a damper on prices.
  - nradov 3y ago

gwbas1c 3y ago

> You sell your existing house, which has benefited from inflation, then buy somewhere with the same mortgage payment over the same remaining duration you had if you choose not to trade up Are you living under a rock? Mortgage rates going up make that impossible.

ryanSrich 3y ago

> You sell your existing house, which has benefited from inflation Your new interest rate is going to absolutely demolish any inflation benefit your current house has. I don't think people really understand how bad higher interest rates are when there's a housing shortage. - A $500k house at 3% is $2,100/month. - A $500k house at 7.5% is $3,500/month - That's a difference of nearly $17,000/year The house that was $500k at 3% in 2021 is still $500k at 7.5% in 2023. Housing prices haven't budged. We'd need to see a 20-40% reduction in prices across the board to stabilize affordability, but that won't happen because there's too much demand.