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This doesn't help people that are largely trapped on low interest rates, though?

by taeric 3y ago

lotsofpulp 3y ago
I do not understand what trapped means. More housing will reduce prices for housing, for everyone.
- taeric 3y ago
  The hypothesis in much of the rest of this thread is that rates going up make it harder to change loans for people. Having pricing go down would similarly make it harder, as they would be taking a haircut on equity. Right?
  - lotsofpulp 3y ago
    What does “changing loans” mean? Some people might lose equity if they bought when prices were highest. But they would also be able to buy at a cheaper price. Either way, maintaining a few people's equity is not society's goal. The only reason a loan is harder to get when interest rates increase is because the monthly payment at a given principal goes up, and so the lender needs to see more income to trust the borrower will be able to pay. If the price goes down, and hence the principal goes down, then the monthly payment goes down, so the lender needs to see less income to trust the borrower will be able to pay.
    - taeric 3y ago
      Read the rest of the branch from my opening post. I'm not necessarily claiming that as my hypothesis, but the one that seems common among the replies. Basically, bottom line is people care about monthly payments. Interest rates going up means that the same houses have higher payments. You /could/ expect that prices going down would be enough to keep people happy to move. That is indeed what I was asking at the open. However, stock going down means existing values goes down, which is just another form of trap for people. Specific trap being that many moves are leveraged on older equity, but to get out of the old loans will now require more cash. This is largely because older equity was also under a leveraged loan. In markets that are not so heavily loan driven, the existing assets are straight forward to manage and convert into down payments on new properties. Housing is specifically not that. If I'm misrepresenting that, please correct me.
      - lotsofpulp 3y ago
        Only a very small portion of people who bought at the peak would be “trapped” - i.e. underwater on their loans such that they would have to pay to sell the house. The vast, vast majority would be more mobile since homes are cheaper, and the cheaper something is, the less money you need to buy it. The government gave a gift to many people in the last 20 years of keeping interest rates near zero and pulling forward all that price appreciation. Unfortunately, the future generation might not want to expect the same treatment.
        taeric 3y ago
        This feels like a corollary hypothesis? I'd love to see details, but from all the numbers I've seen, a majority of people have their equity largely converted into leveraged debt. It is more than a little terrifying, honestly.

This doesn't help people that are largely trapped on low interest rates, though?

by 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.

taeric 3y ago
The hypothesis in much of the rest of this thread is that rates going up make it harder to change loans for people. Having pricing go down would similarly make it harder, as they would be taking a haircut on equity. Right?
- lotsofpulp 3y ago
  What does “changing loans” mean? Some people might lose equity if they bought when prices were highest. But they would also be able to buy at a cheaper price. Either way, maintaining a few people's equity is not society's goal. The only reason a loan is harder to get when interest rates increase is because the monthly payment at a given principal goes up, and so the lender needs to see more income to trust the borrower will be able to pay. If the price goes down, and hence the principal goes down, then the monthly payment goes down, so the lender needs to see less income to trust the borrower will be able to pay.
  - taeric 3y ago
    Read the rest of the branch from my opening post. I'm not necessarily claiming that as my hypothesis, but the one that seems common among the replies. Basically, bottom line is people care about monthly payments. Interest rates going up means that the same houses have higher payments. You /could/ expect that prices going down would be enough to keep people happy to move. That is indeed what I was asking at the open. However, stock going down means existing values goes down, which is just another form of trap for people. Specific trap being that many moves are leveraged on older equity, but to get out of the old loans will now require more cash. This is largely because older equity was also under a leveraged loan. In markets that are not so heavily loan driven, the existing assets are straight forward to manage and convert into down payments on new properties. Housing is specifically not that. If I'm misrepresenting that, please correct me.
    - lotsofpulp 3y ago
      Only a very small portion of people who bought at the peak would be “trapped” - i.e. underwater on their loans such that they would have to pay to sell the house. The vast, vast majority would be more mobile since homes are cheaper, and the cheaper something is, the less money you need to buy it. The government gave a gift to many people in the last 20 years of keeping interest rates near zero and pulling forward all that price appreciation. Unfortunately, the future generation might not want to expect the same treatment.
      - taeric 3y ago
        This feels like a corollary hypothesis? I'd love to see details, but from all the numbers I've seen, a majority of people have their equity largely converted into leveraged debt. It is more than a little terrifying, honestly.