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> house inventory is very low because no one sells their low interest mortgage. Short term yes. I would 100% delay moving to a 2 bedroom bigger house and just

> house inventory is very low because no one sells their low interest mortgage. Short term yes. I would 100% delay moving to a 2 bedroom bigger house and just make do with a slightly smaller house to avoid a 25% more expensive house having a 100% higher mortgage payment. But if interest rates stay up for 2, 3, 5 years - more and more of those want to moves will just suck it up and do it.

taeric 3y ago
I would think the idea is that if the rates stay up, prices should eventually come down a bit to help bump people into moving? Is that not the idea?
- Ekaros 3y ago
  The monthly payment is important one. Not the price... So either the wages have to go up or the property prices go down. Or mortages extend an other 10 or 20 years.
- brianwawok 3y ago
  That is the idea yes. Over the long term everything converges to monthly payment. If someone has $1000 to spend on a house - they ultimately don't care if its a $300,000 house with a 2% APR loan, or a $200,000 house with a 10% APR loan (math made up and not exactly correct). The problem is people are very very happy when they can make some cash off a move. People are very very sad when they are underwater. To all the people that paid $250-$275k for the house above? They are going to delay for a very long time before they sell for 200k. Likely long enough that inflation will slowly bring up the value. People are very emotional about this and do not make wise economic decisions. For example - the finances of the time may mean that the house they are both selling and buying are 30% down. But it's a real feel bad, and losing money in a house is enough to stop many people from moving. a 30% gain where the seller both makes money on their sale AND ends up paying way more in total? It feels good and people jump on that instantly. (And the way down payments work, its generally easier for someone with limited liquid assets to to the sell + buy when the market is up 30%, vs when the market is down 30%).
  - taeric 3y ago
    How do HELOCs enter into this? I'm assuming many are now trapped into one of those that they were lured to during low rates? That is, it isn't just down payments and moves, but people that were close to owning getting trapped in monthly payments?
    - brianwawok 3y ago
      I think either HELOC or a very low down payment mortgage (0% down VA loan) run this risk. Say you buy a house for 300k with 0 down. After 3 years of living there, you still owe something like $280k. If the price fell to 200k.. you would need to come up with 80k to move (PLUS whatever the new down payment is). But odds are very good if you took a 0 down payment mortgage, you aren't able to easily scrap together 80k to cover it.
      - taeric 3y ago
        Makes sense. Also, I realize you can view a HELOC as basically a move into the same location. That is, whether a house has a HELOC or a new mortgage doesn't really matter, and both are likely driven by the same dynamics.
  - dahwolf 3y ago
    Another factor that is commonly overlooked which keeps prices from falling: the price only needs to be affordable to buyers. When supply is very low, you only need a small group of buyers being able to afford sustained high prices. It doesn't matter if the general public can't afford a 400K home. Only buyers need to be able to afford it, and you'll always have a group that can.
- toddmatthews 3y ago
  in theory yes, but if you own a home with a lower mortgage rate, are you really gonna lower the price of your house, so that you can then buy another home with a higher rate? you may just stay with your lower rate
  - taeric 3y ago
    I would expect other factors to play in a little more, but I can't say they will. (Size, location, etc.) That is, I don't think moving is usually driven just by prices. Is it? Investing largely is, but investment firms buying up neighborhoods is its own problem.
    - brianwawok 3y ago
      If price was never an issue, people would generally move a lot more. Move to be closer to school. Move to be closer to a new job. Obviously moving is a PITA and you have things like maybe moving further way from a family etc.. but we can see when the market is rising that quite a lot of people move. But a lot of these moves are just improvement moves. Move to a bigger place to have more room for kids. Move to a smaller place to save on mortgage for empty nesters. Move to make your 1 hour work commute 15 minutes. People would love to make these moves, but if the money doesn't line up - it isn't going to happen. Very few of these are REQURIED moves. For sure required moves exist. Live in a studio and have a kid or two. Get a very good job 1000 miles away. Graduate college. But these are not "most" moves.
      - taeric 3y ago
        Makes a ton of sense. My mental model is that I only consider moving for utility reasons, but I think it is undeniable that that is not the main driver there. Would be neat to see full breakdowns on these numbers, but I fully expect what you are describing.
        brianwawok 3y ago
        https://www.jchs.harvard.edu/blog/who-is-moving-and-why-seven-questions-about-residential-mobility https://www.jchs.harvard.edu/blog/who-is-moving-and-why-seve... Has some actual numbers that are interesting. Moves slowing down as you age lined up fairly similar to my path, I think my entire life moves were at like: 21, 22, 23, 28, 30, 33, 37... and I may not move again, or if I do I would see it as 10+ years out.
- riknos314 3y ago
  Not really. The challenge is that higher interest rates increase the total cost of buying. Standard demand curves tell us that the quantity demanded at a higher cost is lower. In a typical market, an increased cost is balanced by sellers increasing the quantity they sell. However since housing is almost exclusively bought with loans, and the current increase in cost is driven by interest rates payed to mortgage brokers rather than the cost of the home passed onto the seller, we don't see the same increase in supply relative to the cost of buying that we would expect in a market not driven by loan dynamics. Tl;Dr: Higher interest rates increase costs to buyers without increasing profits for sellers, reducing the total number of units selling at a given price.
  - taeric 3y ago
    Makes sense. I was assuming the idea was that you could nudge long term prices a little bit. But I do have to consider that houses are largely bought on loans now. I'd guess that the automobile market is similarly impacted, just has a larger buffer in the used marketplace to eat in some of the negatives? Is there a viable path to lower costs on housing? :(
    - lotsofpulp 3y ago
      Building more houses (or condos or townhomes or apartments).
      - taeric 3y ago
        This doesn't help people that are largely trapped on low interest rates, though?
        lotsofpulp 3y ago
        I do not understand what trapped means. More housing will reduce prices for housing, for everyone.
        3y ago

taeric 3y ago

I would think the idea is that if the rates stay up, prices should eventually come down a bit to help bump people into moving? Is that not the idea?

Ekaros 3y ago
The monthly payment is important one. Not the price... So either the wages have to go up or the property prices go down. Or mortages extend an other 10 or 20 years.
brianwawok 3y ago
That is the idea yes. Over the long term everything converges to monthly payment. If someone has $1000 to spend on a house - they ultimately don't care if its a $300,000 house with a 2% APR loan, or a $200,000 house with a 10% APR loan (math made up and not exactly correct). The problem is people are very very happy when they can make some cash off a move. People are very very sad when they are underwater. To all the people that paid $250-$275k for the house above? They are going to delay for a very long time before they sell for 200k. Likely long enough that inflation will slowly bring up the value. People are very emotional about this and do not make wise economic decisions. For example - the finances of the time may mean that the house they are both selling and buying are 30% down. But it's a real feel bad, and losing money in a house is enough to stop many people from moving. a 30% gain where the seller both makes money on their sale AND ends up paying way more in total? It feels good and people jump on that instantly. (And the way down payments work, its generally easier for someone with limited liquid assets to to the sell + buy when the market is up 30%, vs when the market is down 30%).
- taeric 3y ago
  How do HELOCs enter into this? I'm assuming many are now trapped into one of those that they were lured to during low rates? That is, it isn't just down payments and moves, but people that were close to owning getting trapped in monthly payments?
  - brianwawok 3y ago
    I think either HELOC or a very low down payment mortgage (0% down VA loan) run this risk. Say you buy a house for 300k with 0 down. After 3 years of living there, you still owe something like $280k. If the price fell to 200k.. you would need to come up with 80k to move (PLUS whatever the new down payment is). But odds are very good if you took a 0 down payment mortgage, you aren't able to easily scrap together 80k to cover it.
    - taeric 3y ago
      Makes sense. Also, I realize you can view a HELOC as basically a move into the same location. That is, whether a house has a HELOC or a new mortgage doesn't really matter, and both are likely driven by the same dynamics.
- dahwolf 3y ago
  Another factor that is commonly overlooked which keeps prices from falling: the price only needs to be affordable to buyers. When supply is very low, you only need a small group of buyers being able to afford sustained high prices. It doesn't matter if the general public can't afford a 400K home. Only buyers need to be able to afford it, and you'll always have a group that can.
toddmatthews 3y ago
in theory yes, but if you own a home with a lower mortgage rate, are you really gonna lower the price of your house, so that you can then buy another home with a higher rate? you may just stay with your lower rate
- taeric 3y ago
  I would expect other factors to play in a little more, but I can't say they will. (Size, location, etc.) That is, I don't think moving is usually driven just by prices. Is it? Investing largely is, but investment firms buying up neighborhoods is its own problem.
  - brianwawok 3y ago
    If price was never an issue, people would generally move a lot more. Move to be closer to school. Move to be closer to a new job. Obviously moving is a PITA and you have things like maybe moving further way from a family etc.. but we can see when the market is rising that quite a lot of people move. But a lot of these moves are just improvement moves. Move to a bigger place to have more room for kids. Move to a smaller place to save on mortgage for empty nesters. Move to make your 1 hour work commute 15 minutes. People would love to make these moves, but if the money doesn't line up - it isn't going to happen. Very few of these are REQURIED moves. For sure required moves exist. Live in a studio and have a kid or two. Get a very good job 1000 miles away. Graduate college. But these are not "most" moves.
    - taeric 3y ago
      Makes a ton of sense. My mental model is that I only consider moving for utility reasons, but I think it is undeniable that that is not the main driver there. Would be neat to see full breakdowns on these numbers, but I fully expect what you are describing.
      - brianwawok 3y ago
        https://www.jchs.harvard.edu/blog/who-is-moving-and-why-seven-questions-about-residential-mobility https://www.jchs.harvard.edu/blog/who-is-moving-and-why-seve... Has some actual numbers that are interesting. Moves slowing down as you age lined up fairly similar to my path, I think my entire life moves were at like: 21, 22, 23, 28, 30, 33, 37... and I may not move again, or if I do I would see it as 10+ years out.
riknos314 3y ago
Not really. The challenge is that higher interest rates increase the total cost of buying. Standard demand curves tell us that the quantity demanded at a higher cost is lower. In a typical market, an increased cost is balanced by sellers increasing the quantity they sell. However since housing is almost exclusively bought with loans, and the current increase in cost is driven by interest rates payed to mortgage brokers rather than the cost of the home passed onto the seller, we don't see the same increase in supply relative to the cost of buying that we would expect in a market not driven by loan dynamics. Tl;Dr: Higher interest rates increase costs to buyers without increasing profits for sellers, reducing the total number of units selling at a given price.
- taeric 3y ago
  Makes sense. I was assuming the idea was that you could nudge long term prices a little bit. But I do have to consider that houses are largely bought on loans now. I'd guess that the automobile market is similarly impacted, just has a larger buffer in the used marketplace to eat in some of the negatives? Is there a viable path to lower costs on housing? :(
  - lotsofpulp 3y ago
    Building more houses (or condos or townhomes or apartments).
    - taeric 3y ago
      This doesn't help people that are largely trapped on low interest rates, though?
      - lotsofpulp 3y ago
        I do not understand what trapped means. More housing will reduce prices for housing, for everyone.
        3y ago