6 ms·
Middle class homebuyers taking $7k mortgages planning to later refinance down
- archo 3y agohttps://archive.is/12r9Z https://archive.is/12r9Z
- throwawaybbq1 3y agoThis was actually a very nice article! Thanks! I liked the last line the most .. I think we've all gotten accustomed to zero interests, and this has changed our behavior. My father to a large extend screwed up his (and our family's) life because he lived in an era of high rates. He did not understand the world had changed. We could have bought a house for cash in 1995 but he chose to rent. After that, it was always a bubble, with no buying opportunity like 1995 ever. It makes me wonder if all of us have similarly not realized the world is a different place post rate hikes. There is this inevitable dogma that "rates will go back down". A lot of people are making that bet and I wonder if it is just history again. What I don't understand is what is driving the US economy today. It seems to be firing on all if not most cylinders. People I know who got laid off are finding work (I hear negative experiences too and feel for those people). Hiring in tech seems like it is picking up.
- archagon 3y agoWhat do you mean by “screwed up”?
- yuppie_scum 3y agoMany people bought at like 13% in the 80’s and refinanced down over time as rates came back to earth. In a couple years I’m sure you’ll see the rates drop at least a couple points. Worst case scenario, you sell the house.
- niij 3y agoWorst case scenario is house prices drop causing you to go underwater and eventually bankrupt. There is a lot of risk in buying something beyond your means and gambling that will change.
- willio58 3y agoYou only go bankrupt if you can’t afford the mortgage. If you can afford the mortgage you’ll be fine. Unless the economy collapses from all angles which at that point you’ll be worried about a lot more than bankruptcy.
- niij 3y agoIf you can afford the mortgage then it's within your means. If you take a $7k/mo mortgage assuming rates will drop to make it long-term sustainable...
- deleted 3y ago[deleted]
- Red_Leaves_Flyy 3y agoIf banks are approving people for 7k mortgages that they cannot afford long term I expect another MBS crisis in the near future. Originators are supposed to do due diligence by law to prevent this exact scenario… now people may be taking these on with the ability to afford payments but the desire to refi so they can spend in other areas which is an entirely different scenario than what you’re suggesting. One requires originator fraud the other is rosy financial planning. There’s the possibility that markets nationwide crater and millions of people go bankrupt to escape underwater mortgages which would do serious economic damage but that’s such an extreme scenario that it’s not worth seriously considering.
- saddd 3y agoBankruptcy is temporary. I wish I had been willing to risk it in my 20s.
- Nursie 3y agoI find the US mortgage market deeply weird. I’ve had mortgages in two countries, the UK and Australia. They work very similarly, you can generally get a ‘tracker’ mortgage, which is a little above the central bank rate and tracks the central bank rate, so your repayments vary over time, or you can get a fixed rate. Fixed rates are usually more expensive, and the longer you fix (typically 1,2,3 or 5 years, though you do see 8) the more of a premium you pay over the tracker rate. When your fixed period expires you usually refinance based around whatever new rates are available at that point, and you are usually constrained from refinancing during that period (exit fees). But in the US I understand that people usually fix the rate for the whole term of the loan? And I imagine that makes refinancing quite rare? Is this not quite risky for banks? Not that banks taking a risk is bad, but it seems a very long bet for them. What sort of interest rate premium over the base rate is common? In the UK or here AFAICT it’s usually about 1.2-1.5% over base rate for the better value trackers and goes up from there for fixed, depending on your loan to value ratio as well. IIRC I had a five year fixed at about 2.5% over base in the UK, though memory is fuzzy.
- throwawaybbq1 3y agoUS mortgages are unique I believe. Canada does 5 year fixed and you refinance at the current rate. I believe the US mortgages work because of Fannie Mae/Mac and a market in mortgage backed securities ( MBOs? I thought they caused the 2008 crisis but I think they are still a thing with better risk management, I dunno?).
- sandydan 3y agoIt’s not, my primary option when buying in France was 10-20 year fixed I assume there are a good deal more countries with that sort of market
- pessimizer 3y agoIt was auction-rate mortgage backed securities that triggered everything. If you see those start showing up again, know we're heading for an awful place.
- 3y ago
- ksherlock 3y agoI know this is peak hn but the mortgage rate doesn't matter if you don't have a mortgage. Ideally, higher mortgage rates should push home prices lower and benefit cash buyers.
- agloe_dreams 3y agoRealistically, however, high mortgage rates prevent current homeowners from selling (as they couldn’t match their current rate), thus utterly trashing supply. The reality is that people need to live somewhere. Cash buyers rolling in and making them a rental property just takes more property off the market. It is a runaway situation.
- ancientworldnow 3y agoIt would improve liquidity but most people selling their homes also need to buy a new one.
- arcbyte 3y agoThe rate is irrelevant. Matching the ratw doesn't matter. Matching the approproate monthly payment is all that matters.
- agloe_dreams 3y ago> Matching the approproate monthly payment is all that matters. I'm not sure you follow. Monthly payment, assuming the same loan term and the buyer not losing equity, is (amount borrowed + interest) / term. If the person selling their house was paying a lower rate and their house gained in value, and the house they are buying is worth the same (as the housing market got broadly more expensive) but the interest rate is higher, it means that to match the monthly payment one would have to buy a 'cheaper' house than their current. That just isn't favorable.
- xrikcus 3y agoYes, which means downsizing. Need to downsize will put people off selling. People being put off selling reduces supply. Small supply keeps prices high.
- ShadowBanThis01 3y agoAll of this interest-rate hiking hasn't done squat to stop inflation. Why? Because the money supply isn't causing inflation. Oligopoly and monopoly are causing inflation, but those in power are too gutless or ignorant to call it out... and the news media long ago stopped doing any actual investigation or asking intelligent questions (with a couple of exceptions). We all know the Republicans won't call it out, because they're corporate toadies. But the Biden administration hasn't either, except for a few limp complaints. So now we have high interest rates AND high prices. Great work, "representatives."
- gloryjulio 3y agoDems are also corporate toadies. We can say it out.
- ShadowBanThis01 3y agoTo some extent, but it's a far lesser extent.
- gloryjulio 3y agoTo a lesser extent I agree. But I don't think it's far behind.
- seanmcdirmid 3y agoThey are. Especially these days as Republicans lean more heavily into culture wars and less into the economy (eg see DeSantis recent attacks on Disney and Anheuser-Busch), Democrats are becoming the pro business party.
- ShadowBanThis01 3y agoOh really? Based on what behavior? Remember that it's the Republicans who piss and moan about "illegals stealing our jobs," but refuse to require employers to use E-Verify. Why? Because the corporations they serve rely on cheap illegal labor. It's Republicans who oppose the government setting up the means for us to pay our taxes free online. Why? Because they're toadies to H&R Block and Intuit. They also opposed Net Neutrality. Why? Because they're toadies to telcos. Do you need more examples?
- PaywallBuster 3y agodangerous play (as I've read so far) home values are hugely inflated when they drop too, you'll end up with negative equity and possibly a denied refinancing worst of both worlds
- vkou 3y ago[flagged]
- slater 3y ago[flagged]
- bsder 3y ago[flagged]
- nickphx 3y agoHuh? Sub-prime no-doc, interest only loans were handed out like Costco samples, repacked as mortgage backed securities and dumped on the market .
- bsder 3y agoMostly to minority housebuyers who had very few other choices as, in reality, they didn't qualify for a loan. You had a large number of predatory banks with a big helping of fraud filling out bogus paperwork and shoving junk loans into the system. The homebuyers lost their money, their house, and their credit. The economy almost collapsed. A tiny number of bank loan officers at the bottom got convicted as scapegoats. And all the bank fat cats got bailed out. The fact that Obama didn't simply nationalize every single failing megabank was possibly his biggest failure as President.
- fortran77 3y ago[flagged]
- deleted 3y ago[deleted]
- kristianp 3y agoIn case you're wondering, no they're not borrowing $7k. The $7k is the monthly repayment. What a silly headline.
- Simulacra 3y agoWe bought our home in Washington DC in 2019. Our mortgage is about $2000 a month, I could not imagine or even contemplate trying to pay a $7000 a month mortgage.