5 ms·

Mortgage demand drops to a 28-year low as interest rates soar to 7.31%

11 points by donsupreme 3y ago

chiefalchemist 3y ago
Maybe it's me, but this feels counterintuitive. As mortgage rates go up, demand falls, and then prices fall. That is, at any given moment, the total cost of the mortgage remains same-ish. But. Most importantly, eventually, you'll be able to refinance at a lower rate. That is, you're getting a home priced for, say, 7%+ market, and paying for it at, say, a 5% rate; which also likely means your home will increase in value because demand has returned.
- JJMcJ 3y ago
  Prices do not fall as much as needed to equalize mortgage payments. Demand falls, since few people MUST sell their homes for lower prices. Now if the high rates were to continue for a longer time, that would be a different story.
  - JJMcJ 3y ago
    To clarify - demand falls, but many sellers do not need to sell their house right then. So many houses are kept off the market and so prices don't fall as much as they otherwise would.
- tinus_hn 3y ago
  If there are enough houses it’s a reasonably normal market. Otherwise there is always more demand than supply anyway and people will pay up to what they can afford, and if interest is higher they can afford less.
- jmoak3 3y ago
  I think you have it backwards since prices really haven’t moved enough to counter the rate hikes. Monthly payments are still up 50-75% depending on the home and area compared to Q1 2022 while prices are mostly flat. This means that homes are currently priced at 3-5% rates but currently feature 7% rates. Today’s buyers implicitly expect to be able to refinance sometime soon - without that expectation prices would be far lower. If rates at 7% is our new normal then people buying homes today are far overpaying and they will be disappointed in a year’s time.
- JambalayaJim 3y ago
  This is entirely dependent on the market in question. Home prices are not a 1:1 reflection of interest rates. In my Canadian city, where nominal prices did fall due to ballooning interest rates, but not proportionally to increased costs. This is because: 1. Home sellers still have to live somewhere, and will not be willing to sell and move for a big loss (unless they absolutely have to) 2. There is a belief that rates will come down to reality at some point, even if not as drastically low as the pandemic years. 3. Interest rates do not raise the supply of homes. It’s the opposite in fact. Rental prices continue to increase quite quickly. So even investors are less willing to sell for a loss, as their yields may not have been as highly impacted.
- segmondy 3y ago
  Weird take. When mortgage rates go up, demand falls. But you can't just jump to the conclusion that price will fall. Why? Because you have said nothing about supply. Is supply constant or going up? From what we know, the answer is neither. Supply is also falling, because folks would have to give up their sweet low rates and buy at a higher rate. So the real question is what's the ratio of demand falling to supply falling? If they are the same, then price will not fall. Price would stay the same.
  - oceanplexian 3y ago
    Most people have no understanding of housing economics. Look at Rent Control, the idea that you can make housing more affordable by making it illegal to charge higher prices. People vote for this stuff and then act shocked when there is no affordable housing available. I guess supply and demand isn't taught in school any more.
- slashdev 3y ago
  Nobody wants to sell right now. Partly because the demand isn’t there, partly because the prices are down a little, but mostly because they don’t want to swap a 3% mortgage for a 7% mortgage. I wouldn’t want to sell either in that scenario. If you want a comparable place, your monthly payments are going to nearly double. Not many families can absorb that. You could sell and rent, but most people don’t want to do that, it feels like going backwards. Ironically this means new construction is doing pretty good. They’re offering discounted mortgages and it’s basically the only option for someone wanting to go from renting to buying.
  - toomuchtodo 3y ago
    Also, if you sell and rent, your housing payment is no longer locked in. You will be exposed to annual rent increases, likely exceeding any annual wage/earned income cost of living bump. As you mention, new construction is the best deal for folks, as those builders have to move units to remain in business.
  - chiefalchemist 3y ago
    Makes sense. No sense getting (pre-approved for) a mortgage if there's not enough inventory. Also, I would imagine banks have to be more conservative as prices have yet to full correct (i.e., fall). They don't a loan that the asset can't cover.
- nradov 3y ago
  There is a lot of friction in this market. Owners take a long time to reduce prices, and many just take their properties off the market instead of selling at what they subjectively consider to be a low price. Also, in affluent areas many purchases are cash deals without a mortgage by investors or wealthy private buyers. So, middle-class buyers are essentially being shut out of the market.

11 points by donsupreme 3y ago

Maybe it's me, but this feels counterintuitive. As mortgage rates go up, demand falls, and then prices fall. That is, at any given moment, the total cost of the mortgage remains same-ish. But. Most importantly, eventually, you'll be able to refinance at a lower rate. That is, you're getting a home priced for, say, 7%+ market, and paying for it at, say, a 5% rate; which also likely means your home will increase in value because demand has returned.

JJMcJ 3y ago
Prices do not fall as much as needed to equalize mortgage payments. Demand falls, since few people MUST sell their homes for lower prices. Now if the high rates were to continue for a longer time, that would be a different story.
- JJMcJ 3y ago
  To clarify - demand falls, but many sellers do not need to sell their house right then. So many houses are kept off the market and so prices don't fall as much as they otherwise would.
tinus_hn 3y ago
If there are enough houses it’s a reasonably normal market. Otherwise there is always more demand than supply anyway and people will pay up to what they can afford, and if interest is higher they can afford less.
jmoak3 3y ago
I think you have it backwards since prices really haven’t moved enough to counter the rate hikes. Monthly payments are still up 50-75% depending on the home and area compared to Q1 2022 while prices are mostly flat. This means that homes are currently priced at 3-5% rates but currently feature 7% rates. Today’s buyers implicitly expect to be able to refinance sometime soon - without that expectation prices would be far lower. If rates at 7% is our new normal then people buying homes today are far overpaying and they will be disappointed in a year’s time.
JambalayaJim 3y ago
This is entirely dependent on the market in question. Home prices are not a 1:1 reflection of interest rates. In my Canadian city, where nominal prices did fall due to ballooning interest rates, but not proportionally to increased costs. This is because: 1. Home sellers still have to live somewhere, and will not be willing to sell and move for a big loss (unless they absolutely have to) 2. There is a belief that rates will come down to reality at some point, even if not as drastically low as the pandemic years. 3. Interest rates do not raise the supply of homes. It’s the opposite in fact. Rental prices continue to increase quite quickly. So even investors are less willing to sell for a loss, as their yields may not have been as highly impacted.
segmondy 3y ago
Weird take. When mortgage rates go up, demand falls. But you can't just jump to the conclusion that price will fall. Why? Because you have said nothing about supply. Is supply constant or going up? From what we know, the answer is neither. Supply is also falling, because folks would have to give up their sweet low rates and buy at a higher rate. So the real question is what's the ratio of demand falling to supply falling? If they are the same, then price will not fall. Price would stay the same.
- oceanplexian 3y ago
  Most people have no understanding of housing economics. Look at Rent Control, the idea that you can make housing more affordable by making it illegal to charge higher prices. People vote for this stuff and then act shocked when there is no affordable housing available. I guess supply and demand isn't taught in school any more.
slashdev 3y ago
Nobody wants to sell right now. Partly because the demand isn’t there, partly because the prices are down a little, but mostly because they don’t want to swap a 3% mortgage for a 7% mortgage. I wouldn’t want to sell either in that scenario. If you want a comparable place, your monthly payments are going to nearly double. Not many families can absorb that. You could sell and rent, but most people don’t want to do that, it feels like going backwards. Ironically this means new construction is doing pretty good. They’re offering discounted mortgages and it’s basically the only option for someone wanting to go from renting to buying.
- toomuchtodo 3y ago
  Also, if you sell and rent, your housing payment is no longer locked in. You will be exposed to annual rent increases, likely exceeding any annual wage/earned income cost of living bump. As you mention, new construction is the best deal for folks, as those builders have to move units to remain in business.
- chiefalchemist 3y ago
  Makes sense. No sense getting (pre-approved for) a mortgage if there's not enough inventory. Also, I would imagine banks have to be more conservative as prices have yet to full correct (i.e., fall). They don't a loan that the asset can't cover.
nradov 3y ago
There is a lot of friction in this market. Owners take a long time to reduce prices, and many just take their properties off the market instead of selling at what they subjectively consider to be a low price. Also, in affluent areas many purchases are cash deals without a mortgage by investors or wealthy private buyers. So, middle-class buyers are essentially being shut out of the market.