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I had a brief interaction with a real estate agent a few months back and he told me they really have trouble selling houses now at those interest rates. The run

I had a brief interaction with a real estate agent a few months back and he told me they really have trouble selling houses now at those interest rates. The run on housing apparently has dialed back significantly. He also mentioned that he thinks in around 5 and 10 years time the market might be flooded with houses people bought at low interest rates because they will not be able to pay their mortgage at these new interest rates and those are typical timeframes for interest rate guarantees. Maybe someone with more insight can share their perspective. I also wonder if people who are in a position to sell our build houses will try (and maybe even succeed?) to sit this out or whether we will see a downward trend in prices again.

nradov 3y ago
Homeowners who do have low interest loans will probably also devote much of their disposable income to paying down the principal in anticipation that rates will rise later. That means less spending on home improvements, consumer products, vehicles, travel, etc which will act as a further drag on economic growth.
onlyrealcuzzo 3y ago
If things continue, in 5-10 years, dollars will be worth 50 cents, and it should be MUCH easier to pay your mortgage. And, I'll eat my hat if we don't get back to ZIRP sometime in the next 10 years.
- myth_drannon 3y ago
  That's not going to happen, salaries are depressed and are not keeping up with inflation by a large margin.
  - dragonwriter 3y ago
    The balance on an existing loan doesn’t increase with inflation, though.
    - myth_drannon 3y ago
      Yes, but the interest payments on mortgages with variable rates had doubled. Now some people basically are paying interest only without paying off their principal amount.
      - onlyrealcuzzo 3y ago
        <2% of US homes are on variable rate mortgages.
      - red-iron-pine 3y ago
        Most folks aren't on variable rates. If you're on a fixed 15-year or 30-year then inflation is generally working in your favor. Salaries not going up is not directly related to mortgages, and while I can't speak to all jobs, has been pretty good in the STEM field.
  - yamtaddle 3y ago
    Everyone freaked out about rising wages because they saw fast-food worker "we're hiring" signs offering $17/hr... meanwhile the $20/hr worker nearby saw a 1.5% COL raise in a 10+% inflation environment (and higher inflation on the cost of things that actually matter).
- hhvn 3y ago
  Atleast for the past few decades, salaries have increased less than what's needed to compensate for the change of value of the currency. Meaning the amount you make each year will on average be worth less.
  - candiodari 3y ago
    The loan amount, however, will stay contant. Your pay goes up. It just goes up 4% per year, while inflation goes up 10%. This does mean your loan becomes 4% "less" per year. It's just Big Macs go up 6%, making your pay worth less Big Macs. But your pay still becomes worth more loan repayments. The big increase only applies to new loans. I would also like to point out that at 4% per year pay increases, houses become worth that amount less per year, for the same dollar amount. That means they "drop" 20% in price over 5 years.
ibejoeb 3y ago
Are adjustable-rate mortgages common in Germany?
- runsWphotons 3y ago
  They are normal basically everywhere but USA I think.
  - malka 3y ago
    I have never seen one in France. Not for mortgage.
  - nkozyra 3y ago
    They were normal for a long time in the US, took a backseat from 2009-2014 or so and are back again. I'm really shocked whenever I hear someone has an ARM again. 2008 wasn't that long ago!
    - Clubber 3y ago
      2000 wasn't that long ago either, but I still see people using 2 digit years.
- c00lio 3y ago
  In Germany it is common to have a fixed rate for 10 years or so. Sometimes you get only 5 years fixed, sometimes 15. After that, you either accept the new rate on the existing contract, or refinance somewhere else (if cheaper with the new rate and fees). There are mortgages with yearly adjustments, but those are rare afaik.
londons_explore 3y ago
Interest rate guarantees last anywhere from 1 to 25 years. That means that in any given year, it is a pretty small chunk of the housing market which will see a change in rates. Overall, that has a significant damping effect on the effects of changing interest rates.
- adra 3y ago
  Maybe in your country. In mine (Canada) even fixed rate mortgages are rarely locked in beyond 5 years, so every mortgage holder will be getting a notable bump in costs in the next few years if rates don't moderate again. In many cases, their servicing rates had 40ish% increases so it's not immaterial.
malka 3y ago
How the f can you have such a big mortgage, with a variable interest rate, and sleep at night ? I'm french, and everyone I know has a fixed interest rate. dont know if it is mandatory, but God, I am so glad that my interest rate will never spike.
- mgaunard 3y ago
  You pay more money for a fixed interest rate.
  - nkozyra 3y ago
    (hopefully)
- KptMarchewa 3y ago
  In 5 years you should have large portion of principal paid off so this would not matter. Average 30 year mortgage is paid off in 11 years.
  - helij 3y ago
    Really interesting. Is it because people sell the property and get a new mortgage for a new place or they outright pay it off after 11 years?
    - quickthrowman 3y ago
      It is the former, very few people are paying off their entire mortgage in 11 years.
  - rsync 3y ago
    In recent decades Swiss and Nordic societies have dealt with rising home values with 50 year mortgages and interest only products that are barely recognizable to US home buyers. Many Swiss have fairly dangerous interest rate exposure (to the SNB) based on the assumption that it will continue selling francs to keep exchange rates more competitive, etc. That will be true … until it isn’t…
marginalia_nu 3y ago
Isn't this even worse for the banks? Like they're stuck with a whole bunch of mortgages on properties that can't be sold and where the owners are on the brink of defaulting on their loans? Feels like a house of cards that would topple over very easily.
mywittyname 3y ago
10 years is a long time. This prediction requires two things to happen: interest rates never decline in that period and wages of the owners stay the same. Given the inverse relationship between the two, I don't see that happening. Even modest 3% wage growth over 10 years is an increase of 34%, 4% pushes that to 50%. Since the mortgage is fixed, these wage gains don't even need to be "real" (positive when inflation adjusted). > I also wonder if people who are in a position to sell our build houses will try (and maybe even succeed?) to sit this out or whether we will see a downward trend in prices again. You can't time the market. It's so difficult to predict what is going to happen in the future with any degree of certainty. Also, where are you going to live in the mean time? Lots of people were burned in 2014-now by assuming the housing market was going to "collapse any minute now" then watching the exact opposite happen. It's as if they thought 2008 was some kind of regular occurrence and not a black swan event.
- ChuckNorris89 3y ago
  >Lots of people were burned in 2014-now by assuming the housing market was going to "collapse any minute now" then watching the exact opposite happen. It's as if they thought 2008 was some kind of regular occurrence and not a black swan event. To be fair to those people, the extra low interest rates of 2014-2022 were the historical black swan event which everyone expected to last a couple of years at most and not a decade, but the banks left the money printer running for too long and now we're facing the inflation fallout. Rates were never in history so low as post 2008. Why would any sane person expect them to last so long?

nradov 3y ago

Homeowners who do have low interest loans will probably also devote much of their disposable income to paying down the principal in anticipation that rates will rise later. That means less spending on home improvements, consumer products, vehicles, travel, etc which will act as a further drag on economic growth.

onlyrealcuzzo 3y ago

If things continue, in 5-10 years, dollars will be worth 50 cents, and it should be MUCH easier to pay your mortgage. And, I'll eat my hat if we don't get back to ZIRP sometime in the next 10 years.

myth_drannon 3y ago
That's not going to happen, salaries are depressed and are not keeping up with inflation by a large margin.
- dragonwriter 3y ago
  The balance on an existing loan doesn’t increase with inflation, though.
  - myth_drannon 3y ago
    Yes, but the interest payments on mortgages with variable rates had doubled. Now some people basically are paying interest only without paying off their principal amount.
    - onlyrealcuzzo 3y ago
      <2% of US homes are on variable rate mortgages.
    - red-iron-pine 3y ago
      Most folks aren't on variable rates. If you're on a fixed 15-year or 30-year then inflation is generally working in your favor. Salaries not going up is not directly related to mortgages, and while I can't speak to all jobs, has been pretty good in the STEM field.
- yamtaddle 3y ago
  Everyone freaked out about rising wages because they saw fast-food worker "we're hiring" signs offering $17/hr... meanwhile the $20/hr worker nearby saw a 1.5% COL raise in a 10+% inflation environment (and higher inflation on the cost of things that actually matter).
hhvn 3y ago
Atleast for the past few decades, salaries have increased less than what's needed to compensate for the change of value of the currency. Meaning the amount you make each year will on average be worth less.
- candiodari 3y ago
  The loan amount, however, will stay contant. Your pay goes up. It just goes up 4% per year, while inflation goes up 10%. This does mean your loan becomes 4% "less" per year. It's just Big Macs go up 6%, making your pay worth less Big Macs. But your pay still becomes worth more loan repayments. The big increase only applies to new loans. I would also like to point out that at 4% per year pay increases, houses become worth that amount less per year, for the same dollar amount. That means they "drop" 20% in price over 5 years.

ibejoeb 3y ago

Are adjustable-rate mortgages common in Germany?

runsWphotons 3y ago
They are normal basically everywhere but USA I think.
- malka 3y ago
  I have never seen one in France. Not for mortgage.
- nkozyra 3y ago
  They were normal for a long time in the US, took a backseat from 2009-2014 or so and are back again. I'm really shocked whenever I hear someone has an ARM again. 2008 wasn't that long ago!
  - Clubber 3y ago
    2000 wasn't that long ago either, but I still see people using 2 digit years.
c00lio 3y ago
In Germany it is common to have a fixed rate for 10 years or so. Sometimes you get only 5 years fixed, sometimes 15. After that, you either accept the new rate on the existing contract, or refinance somewhere else (if cheaper with the new rate and fees). There are mortgages with yearly adjustments, but those are rare afaik.

londons_explore 3y ago

Interest rate guarantees last anywhere from 1 to 25 years. That means that in any given year, it is a pretty small chunk of the housing market which will see a change in rates. Overall, that has a significant damping effect on the effects of changing interest rates.

adra 3y ago
Maybe in your country. In mine (Canada) even fixed rate mortgages are rarely locked in beyond 5 years, so every mortgage holder will be getting a notable bump in costs in the next few years if rates don't moderate again. In many cases, their servicing rates had 40ish% increases so it's not immaterial.

malka 3y ago

How the f can you have such a big mortgage, with a variable interest rate, and sleep at night ? I'm french, and everyone I know has a fixed interest rate. dont know if it is mandatory, but God, I am so glad that my interest rate will never spike.

mgaunard 3y ago
You pay more money for a fixed interest rate.
- nkozyra 3y ago
  (hopefully)
KptMarchewa 3y ago
In 5 years you should have large portion of principal paid off so this would not matter. Average 30 year mortgage is paid off in 11 years.
- helij 3y ago
  Really interesting. Is it because people sell the property and get a new mortgage for a new place or they outright pay it off after 11 years?
  - quickthrowman 3y ago
    It is the former, very few people are paying off their entire mortgage in 11 years.
- rsync 3y ago
  In recent decades Swiss and Nordic societies have dealt with rising home values with 50 year mortgages and interest only products that are barely recognizable to US home buyers. Many Swiss have fairly dangerous interest rate exposure (to the SNB) based on the assumption that it will continue selling francs to keep exchange rates more competitive, etc. That will be true … until it isn’t…

marginalia_nu 3y ago

Isn't this even worse for the banks? Like they're stuck with a whole bunch of mortgages on properties that can't be sold and where the owners are on the brink of defaulting on their loans? Feels like a house of cards that would topple over very easily.

mywittyname 3y ago

10 years is a long time. This prediction requires two things to happen: interest rates never decline in that period and wages of the owners stay the same. Given the inverse relationship between the two, I don't see that happening. Even modest 3% wage growth over 10 years is an increase of 34%, 4% pushes that to 50%. Since the mortgage is fixed, these wage gains don't even need to be "real" (positive when inflation adjusted). > I also wonder if people who are in a position to sell our build houses will try (and maybe even succeed?) to sit this out or whether we will see a downward trend in prices again. You can't time the market. It's so difficult to predict what is going to happen in the future with any degree of certainty. Also, where are you going to live in the mean time? Lots of people were burned in 2014-now by assuming the housing market was going to "collapse any minute now" then watching the exact opposite happen. It's as if they thought 2008 was some kind of regular occurrence and not a black swan event.

ChuckNorris89 3y ago
>Lots of people were burned in 2014-now by assuming the housing market was going to "collapse any minute now" then watching the exact opposite happen. It's as if they thought 2008 was some kind of regular occurrence and not a black swan event. To be fair to those people, the extra low interest rates of 2014-2022 were the historical black swan event which everyone expected to last a couple of years at most and not a decade, but the banks left the money printer running for too long and now we're facing the inflation fallout. Rates were never in history so low as post 2008. Why would any sane person expect them to last so long?