5 ms·
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
by 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 agoHow 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 agoI 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 agoMakes 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 agoAnother 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.