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30-year fixed mortgage rate just hit 8% for the first time since 2000

108 points by throwoutway 3y ago

mvdtnz 3y ago
In the USA, presumably, although they never say it outright.
- klodolph 3y ago
  You could equally criticize BBC for talking about the UK implicitly, or NHK for talking about Japan.
  - mvdtnz 3y ago
    Ok?
    - kzrdude 3y ago
      CNBC can have their own US default context if they want. I guess if you think this needs context, the US part should be mentioned on Hacker news, since here we moved the headline out of its original context.
d_t_w 3y ago
Question from an Australian(ish) here. If you Americans buy a house with an 8% mortgage today, can you remortgage in the future if/when the rate drops. Is the buy-out penalty of remortgaging somehow higher than just selling / repurchasing? Do people get locked into higher mortgage rates for long periods of time that are uncompetitive is my question. Is there a significant downside? Is 30-year fixed normal in the states? 30-year fixed rates don't exist in Australia. You'll get a 5 year fixed rate from ~6% or so, that's about it.
- Cerium 3y ago
  30 year fixed and 15 year fixed are very common. There is also 5 year fixed then variable, but those burnt a lot of people in 2008 so they have a bit of a bad reputation with some. There are generally no early payment penalties. Refinancing is easy and considered worthwhile whenever the rates improve by 0.5 percent or more.
- nostromo 3y ago
  Yes you can refinance at a lower rate if/when rates drop. You have to pay some money to do so, but it's insignificant compared to the cost of interest if it's over a percent lower or so. There are usually no pre-payment penalties. I imagine a lot of people buying houses right now are counting on mortgage rates dropping in the future.
  - bushbaba 3y ago
    *so long as your house appraised for high enough value to meet the debt to equity ratio. So if mortgage rates go down, but your home price crashes 10%, you’ll likely only be able to refinance by significantly paying down the mortgage balance.
- pxeboot 3y ago
  If rates drop, you can refinance immediately, assuming your credit score/income are still sufficient enough to qualify for a new mortgage.
- rpearl 3y ago
  you can refinance when rates are lower. The question is when they will be.
  - Daviey 3y ago
    And pay significant early termination fees.
    - lukevp 3y ago
      Mortgages in the us don’t typically have early prepayment penalties of any kind.
  - frumper 3y ago
    Unless prices drop below your mortgage balance.
    - psunavy03 3y ago
      Prices are not likely to crash with the conditions we have in place currently. Prices crashed in 2008 because there was 10 to 15-year-long bipartisan push that "everyone needs to be a homeowner." This let banks write adjustable-rate loans to people who arguably never should have been touching a mortgage given their financial situation. And when interest rates reset, enough people started defaulting that the whole system collapsed. And that's without getting into the funny business of securitizing those bad mortgages and using them as investment vehicles. These days, mortgages are generally very well-underwritten and only given to people who can afford to pay. High interest rates are going to put a cap on prices, but where we're at now is a supply crunch. 2008 wiped out the homebuilding industry and now there's a supply crunch with not enough houses for the amount of people who want to buy, which is driving up prices.
- forrestthewoods 3y ago
  Yes, you can refinance to a lower rate. It’s easy and people do it all the time. There is some cost overhead so you don’t do it everytime rates drop a tiny bit. But if they drop more than 1% it’s easily worth it.
  - tzs 3y ago
    > Yes, you can refinance to a lower rate. It’s easy and people do it all the time. It's almost unbelievable how easy it can be. I got a call from the company that held my mortgage asking why I hadn't responded to the refinance offer they had sent me. I told them I wasn't aware of any such offer. They said they had FedExed an offer to me a couple weeks earlier. I went and looked on the front porch, and sure enough there was a thick FedEx package there. I hadn't noticed that because I used the back door as my main entry/exit door. Inside was all the paperwork, prefilled, for a refinance with instructions that said all I had to do to accept was call them and tell them, and then they would send a notary to meet me at home or at my office with a copy of the documents for me to sign.
- positr0n 3y ago
  It's easy to refinance at a lower rate. You essentially just pay for and qualify for a new mortgage, the fact that it's a refinance and not a new house you're buying is mostly immaterial. So you're out a few grand in fees, and if you somehow become less creditworthy it may not work. When interest rates first spiked it seems like the prevailing wisdom was that they wouldn't stay high for long, so buyers should just swallow the higher monthly payment "for a year or two" then plan to refi. I don't hear that advice much anymore!
- bhawks 3y ago
  The American mortgage market is very unique from the perspective that it has 10, 15 and 30 year fixed rate debt. There are generally no prepayment penalties and no balloon payment (each payment is the same amount even the last one). You can pay down extra any time you want and it reduces your principal appropriately. The maturities and payment structures are quite generous compared to many other countries mortgage products. Of course there are shorter maturities and different types of adjustable rate mortgages but these are not popular (fallout from 2008 crisis and the general low interest rate environment). Edit: there is also 40 year fixed products starting to be offered.
  - thinkerswell 3y ago
    What is the cause of it being do different from the rest of the world?
    - topspin 3y ago
      Government policy. The US has multiple quasi-government mortgage market makers (because just one is somehow not enough...) that define baseline terms for home mortgages, and everyone must play their tune. See Fannie Mae and Freddie Mac. Seriously. That's what they're named. There is another one tangentially involved as well that I can't remember the name of.
      - Gibbon1 3y ago
        Exactly. Fannie Mae and Freddie Mac buy about around 70 percent the mortgages issued by banks. They only by conforming mortgages, meaning conforming to their terms. https://www.investopedia.com/articles/economics/08/fannie-mae-freddie-mac-credit-crisis.asp https://www.investopedia.com/articles/economics/08/fannie-ma... See also the Federal Housing administration which insures loans. https://www.hud.gov/program_offices/housing/fhahistory https://www.hud.gov/program_offices/housing/fhahistory One can see there really isn't a laissez faire free market at work when it comes to housing in the US. The government is in deep and it's regulated out the ying yang.
- jsolson 3y ago
  A perspective from an American: - Yes, typically we can refinance whenever we like, _but_ it extends the mortgage for a 30 year term, along with additional direct immediate costs (plus human inertia). Unless interest rates were alarmingly high for your last go-round (ehem), you're directly incentivized and indirectly likely to not do so. - I own properties in Canada (yay Commonwealth!). The notion of a 30-year fixed does not exist. One can get a 25-year amortization, but typically only with a 5-10 year guarantee for a fixed rate. - As an American, Canadians are insane for buying into this system. Our system is so much more favorable to anyone with good enough credit to be approved for a loan it's literal comedy. Also our standards for approving someone for a loan seem to be lower (that said, I had no credit history in Canada when I started this adventure, so perhaps residents get a better deal). - As a property investor, I'm happy to control for the cash I sink into my investments in interest versus the returns I get from rental revenue. Combining that with exchange rates and US interest rates versus Canadian, I <3 Canada. - Fully variable interest mortgages are for suckers (and in that regard, I do have some regrets). (bias: I <3 Canada regardless -- I'd live in Whistler, BC if circumstances allowed)
  - gambiting 3y ago
    >>but_ it extends the mortgage for a 30 years How come? Here in UK you just remortgage for the remaining term of your mortgage, if you have 14 years left you just remortgage for 14 years. Is that something that you have to to do in America, or just what most people choose to do?
    - tzs 3y ago
      In the US lenders generally only offer a few options for the lengths of fixed rate mortgages, with 15 and 30 years probably being the most common. There is generally no prepayment penalty here, so if you want some length that isn't one of the standard ones you can just get a longer one and then pay some extra principle each month to pay it off over the timeframe you wanted.
      - blacksmythe 3y ago
        It is amazing how much less time it takes to pay off a 30 year mortgage if you increase the payments 10%. The first good many years are paying mostly just the interest.
- thelastgallon 3y ago
  Yes, you can refinance any time with nearly no cost. During covid years, a lot of homeowners refinanced multiple times, each time with a small bonus (under 3K) for refinancing. What people don't understand though is interest payments are front-loaded. Most of the early payments will be almost all interest, and with frequent refinances most of them are paying interest all time time, extending mortgage by a few years. Most only think of cash flow and the payments appear lower, if you don't think about those extra years. https://thepillmethod.com/help-us-celebrate-the-80th-anniversary-of-the-amortized-30-year-mortgage/ https://thepillmethod.com/help-us-celebrate-the-80th-anniver...
  - hnav 3y ago
    you can just pay off the loan faster and put whatever interest cut you got towards the principal?
    - analognoise 3y ago
      If you're fixed at 2 or 3%, why bother? You can make a better return putting your money elsewhere.
      - saiya-jin 3y ago
        a common mantra, but almost nobody actually does it
        gorjusborg 3y ago
        Also, the return is guaranteed in the case of mortgage repayment. The returns from investment are estimated based on historical performance. You can lose money investing, not so paying off a mortgage early.
        bitshiftfaced 3y ago
        At the very least, during periods when interest rates are significantly above your mortgage rate, such as now, you should put it in a money market account instead of in your mortgage. It's the same amount of risk, but it's liquid. Really, you could do a long term Treasury bond for the same reasoning (same risk, same liquidity).
- jeanloolz 3y ago
  Fixed rate is really common in Europe, definitely not a US thing.
gknapp 3y ago
It's a very interesting time indeed for the housing market! These next 6-12 months are going to tell us something very big about the economy, crash or no crash. If anything, however, the Fed has built up an ability to drop rates if things go awry, so there's padding in the cushion if a fall does happen. An interesting stat: We're almost back to our 2022 quantity of _new_ listings in October [1]. That's substantial because we've hovered around 20% below last year's number for just about every other month this year. One of the big stories of real estate is that sellers don't want to sell because they all locked in killer rates on their current homes, and buyers can't afford to buy with home prices AND mortgage rates what they are. So, seeing even a slight increase in new listings (or the lack of a seasonal dropoff) is maybe an early indication of an easing of that stalemate. At the same time, time on market is still really low, which means that sellers are tapping into the high levels of demand that still exist. As a result, overall inventory isn't increasing. All told though, even with those slight indicators, it's still a really tough time to be a buyer, and for the real estate market overall. The best hope that most have is that the dam leaks more, or even breaks on listings, and of course, if prices start to fall meaningfully, folks will want to cash out high, and you might get a proper "crash". I personally don't really see it, but anything can happen, and we'll know soon enough! [1]: https://www.redfin.com/news/data-center/ https://www.redfin.com/news/data-center/ (Disclaimer, I work at Redfin)
- dehrmann 3y ago
  > it's still a really tough time to be a buyer The fact that I heard this exact same statement when interest rates were at 30-year lows really goes to show how constrained the supply is.
  - roenxi 3y ago
    I doubt low interest rates help buyers all that much. If there are 3 properties on the market and 4 buyers, it doesn't matter what interest rates are, the 3 highest-earning buyers are going to get the houses and one will miss out. The amount of money borrowed might go up and down, but there is a physical balance equation that must be satisfied which doesn't care about the financial situation. In theory, low interest rates will reallocate resources from other sectors of the economy to housing, causing more to be built. In practice I don't know how big a factor this is though - I'm used to there being regulatory restrictions that prevent new housing being built in high-demand areas. But that might be an Australia thing. Regardless it'd lag interest rate changes by a few years because it takes time to organise new construction.
alkibiades 3y ago
it’s strange to me how little attention this is really getting. you’d think politicians would run on solving the housing affordability crisis when half the country is having their life ruined by it.
- toomuchtodo 3y ago
  It will take years to bring supply online. There is no short term fix to build millions of housing units. Also, solving housing affordability drives down real estate prices. Not great as a politician depending on your constituency.
  - jeffbee 3y ago
    The United States builds millions of new homes every month. To increase that rate by 50% or 100% would not be so difficult.
    - dpkirchner 3y ago
      It's more like 100k-200k homes completed per month: https://fred.stlouisfed.org/series/COMPUTNSA https://fred.stlouisfed.org/series/COMPUTNSA
      - toomuchtodo 3y ago
        Additional citations: https://www.axios.com/2023/06/20/housing-shortage-prices-high https://www.axios.com/2023/06/20/housing-shortage-prices-hig... https://www.freddiemac.com/research/insight/20210507-housing-supply https://www.freddiemac.com/research/insight/20210507-housing... > As of the fourth quarter of 2020, the U.S. had a housing supply deficit of 3.8 million units. These 3.8 million units are needed to not only meet the demand from the growing number of households but also to maintain a target vacancy rate of 13%. Between 2018 and 2020, the housing stock deficit increased by approximately 52% (See Appendix 1 for detailed calculations of the Housing Supply Deficit).
  - Moldoteck 3y ago
changoplatanero 3y ago
I naively thought that if mortgage rates are 8% then I ought to be able to invest in a mortgage backed security for an 8% annual return. It turns out that, in the process of creating the mortgage backed securities, various entities take fees and the portion of the mortgage that goes to the investor can be several percent less than the interest rate that the homeowner pays.
- b112 3y ago
  Some people have variable rate mortgages, are you sure you want to invest in such securities?!
- freeAgent 3y ago
  Rates just reached 8%. Where do you think all the securitized 8% mortgages come from? People actually have to lock that rate and close. Then securitization can happen, and of course during that process there will be fees taken out. If you want 8%, become a direct lender.
- throwaway2037 3y ago
  Why buy an MBS when you can buy a mortgage pool from Fannie or Freddie directly? The fees are lower, but you own the full mortgage -- and the full risk of default from borrowers. MBS is better for Alt-A and below credit scores, where you want to protect yourself against losses.
  - SilasX 3y ago
    Link to where you would do this?
    - throwaway2037 3y ago
      Mortgage pools are only for institutions and/or very wealthy (private banked) individuals. If you are already private banked, ask your rep.
      - 3y ago
kdwikzncba 3y ago
Why are mortgage rates still going up when inflation is coming back down?
- riku_iki 3y ago
  probably inflation is still high compared to some benchmark used by fed.
- jessriedel 3y ago
  You can have zero inflation but high time-value of capital.
- HDThoreaun 3y ago
  Fed hasn't started buying bonds or lowering overnight rate
- mips_r4300i 3y ago
  The fed can say whatever it wants but I can go to the grocery store and show you inflation is still increasing. Pretty much all consumer stuff is still going up, despite how much the fed wants to have it not be true.
  - SantalBlush 3y ago
    The Fed says prices are still increasing, so what is this "the fed wants to have it not be true"? Have you actually listened to or read what Powell has said?
- bitshiftfaced 3y ago
  If people believe that the Fed will drop the rate back to nothing at some date close to the future, then investors will behave as though the interest rates aren't increasing, even if they are. In that case, it won't impact inflation. The Fed has to make the rate increase "real", so they must keep increasing the rate and/or keeping it at high levels.
nologic01 3y ago
8% return in fixed income markets will certainly do a number on stock markets up and down and down and up and up and down and
pojzon 3y ago
Wow thats so low. Here we have 9% and its the „good” offer. Soon Ill be working only to pay off interest. The system we have is amazing and totally does not exploit honestly working ppl.
- gulikoza 3y ago
  That's really bad. I refinanced last month to a 3.7% fixed 20-year because the fixed rate here is currently lower than base variable rate (6-month Euribor at 4.1%, which would mean about 5.5% effective rate after the bank markup).
ShadowBanThis01 3y ago
It's truly pathetic how Congress and the media are giving the Biden administration a free pass on refusing to acknowledge that the endless interest-rate hikes AREN'T WORKING. The old models aren't holding up today, because the problem isn't money supply. It's monopoly and oligopoly. We have four meat suppliers, who are now making record profits after whining about a "labor shortage." We have a national crisis after ONE baby-formula factory is shut down for health-code violations. We have what, three suppliers of high-speed Internet, and we're way behind the rest of the civilized worled. And on and on. This "inflation" is straight-up ripping off of the public by huge corporations, abetted by our "representatives."
- derstander 3y ago
  > It's truly pathetic how Congress and the media are giving the Biden administration a free pass on refusing to acknowledge that the endless interest-rate hikes AREN'T WORKING. The President doesn’t control interest rates, the Federal Reserve does. And the President does not control the Federal Reserve. The President nominates the board of governors and the Senate confirms them. The current Federal Reserve chair is actually a Republican first nominated by Trump and then nominated for a second term by Biden (in fact, against pressure from the more left-leaning Democrats like AOC and Warren). Laying the interest rate hikes solely at the Biden administration’s feet expresses a lack of understanding about how the Federal Reserve and interest rates work in the US. There’s plenty of blame to go around here. Edit: here’s a link to the vote for the current chair’s renomination (https://www.senate.gov/legislative/LIS/roll_call_votes/vote1172/vote_117_2_00176.htm https://www.senate.gov/legislative/LIS/roll_call_votes/vote1...) I think it’s interesting because you see as diverse a group as Cruz, Hawley, Rubio, Sanders, and Warren voting together (nays) against the overwhelming majority of yeas (80 to 19 with 1 senator abstaining).
  - junofan 3y ago
    As Truman once said, “The buck stops somewhere else. Probably with the other party. You just don’t understand how these things work.”
    - 3y ago
riantogo 3y ago
Yesterday my friend bid on a house for $3.7M. There were double digit number of bidders. Lost to another buyer who got it for $3.8M all cash. Not saying it is the same everywhere, but where I live it is the norm. Nothing seems to bring down (or even slow) house prices.
- gedy 3y ago
  At that price level, it’s a whole different market and set of buyers. If that's in California, the property taxes alone would be like $3400 a month. I doubt people with that kind of money are troubled by variations on interest rates.
gumballindie 3y ago
Yeah so property prices will go down as a result but considering most people in the west cant afford buying without a mortgage it will still be expensive for the average joe. So this is good news for cash buyers, who will make a killing once rates drop, and bad news for wage workers.
mikhailfranco 3y ago
It is egregious that capital gains taxes (including real estate), are based on the nominal value, which means that owners (sellers) of capital pay taxes on inflation. The nominal value goes up, the relative real value is unchanged, but taxes are due.
- thelastparadise 3y ago
  Even if they accounted for inflation in the tax computation, it would still be wack. The official inflation number is severely understated (exludes food, energy, and housing).
- HDThoreaun 3y ago
  It is egregious that capital gains are taxed at less than half the rate normal income is for even moderate middle class earners.
  - deleted 3y ago
    [deleted]
irrational 3y ago
So people near me just put their house on the market... in October... with 8% mortgage rates.... I have no idea what they are thinking. I know they aren't putting it on the market because of financial or health or family reasons. I just boggles my mind.
- ChatGTP 3y ago
  Well it could be 10% on 2 years or less?
  - jrumbut 3y ago
    This is very true! 8% is not that high historically: https://money.usnews.com/loans/mortgages/articles/historical-mortgage-rates https://money.usnews.com/loans/mortgages/articles/historical... It's the past several years that were the anomaly. There's a legitimate chance we don't see rates like we did in 2021 again for decades.
- jjtheblunt 3y ago
  People buy houses with cash is what they’re thinking.
  - spondylosaurus 3y ago
    My parental units literally just sold their house to a cash buyer... so yep, exactly this. Final sale was over a million dollars by the way. Where people come up with that kind of cash is beyond me, but they're coming up with it one way or another.
    - EB66 3y ago
      > Where people come up with that kind of cash is beyond me, but they're coming up with it one way or another. A "cash buyer" just means that the buyer didn't open a new mortgage to close the sale. Cash buyers often bring in cash from other interest-accruing loans -- such as HELOCs or portfolio loans. Foreigners or irregular income earners are a couple examples of people who might not qualify for a conventional mortgage and would need to tap into alternative loans to buy a house and thereby become a "cash buyer". Cash offers are also considered more competitive (they close faster), so someone might make a cash offer (via other loans) just to make their offer have a higher chance of succeeding.

108 points by throwoutway 3y ago

mvdtnz 3y ago

In the USA, presumably, although they never say it outright.

klodolph 3y ago
You could equally criticize BBC for talking about the UK implicitly, or NHK for talking about Japan.
- mvdtnz 3y ago
  Ok?
  - kzrdude 3y ago
    CNBC can have their own US default context if they want. I guess if you think this needs context, the US part should be mentioned on Hacker news, since here we moved the headline out of its original context.

d_t_w 3y ago

Question from an Australian(ish) here. If you Americans buy a house with an 8% mortgage today, can you remortgage in the future if/when the rate drops. Is the buy-out penalty of remortgaging somehow higher than just selling / repurchasing? Do people get locked into higher mortgage rates for long periods of time that are uncompetitive is my question. Is there a significant downside? Is 30-year fixed normal in the states? 30-year fixed rates don't exist in Australia. You'll get a 5 year fixed rate from ~6% or so, that's about it.

Cerium 3y ago
30 year fixed and 15 year fixed are very common. There is also 5 year fixed then variable, but those burnt a lot of people in 2008 so they have a bit of a bad reputation with some. There are generally no early payment penalties. Refinancing is easy and considered worthwhile whenever the rates improve by 0.5 percent or more.
nostromo 3y ago
Yes you can refinance at a lower rate if/when rates drop. You have to pay some money to do so, but it's insignificant compared to the cost of interest if it's over a percent lower or so. There are usually no pre-payment penalties. I imagine a lot of people buying houses right now are counting on mortgage rates dropping in the future.
- bushbaba 3y ago
  *so long as your house appraised for high enough value to meet the debt to equity ratio. So if mortgage rates go down, but your home price crashes 10%, you’ll likely only be able to refinance by significantly paying down the mortgage balance.
pxeboot 3y ago
If rates drop, you can refinance immediately, assuming your credit score/income are still sufficient enough to qualify for a new mortgage.
rpearl 3y ago
you can refinance when rates are lower. The question is when they will be.
- Daviey 3y ago
  And pay significant early termination fees.
  - lukevp 3y ago
    Mortgages in the us don’t typically have early prepayment penalties of any kind.
- frumper 3y ago
  Unless prices drop below your mortgage balance.
  - psunavy03 3y ago
    Prices are not likely to crash with the conditions we have in place currently. Prices crashed in 2008 because there was 10 to 15-year-long bipartisan push that "everyone needs to be a homeowner." This let banks write adjustable-rate loans to people who arguably never should have been touching a mortgage given their financial situation. And when interest rates reset, enough people started defaulting that the whole system collapsed. And that's without getting into the funny business of securitizing those bad mortgages and using them as investment vehicles. These days, mortgages are generally very well-underwritten and only given to people who can afford to pay. High interest rates are going to put a cap on prices, but where we're at now is a supply crunch. 2008 wiped out the homebuilding industry and now there's a supply crunch with not enough houses for the amount of people who want to buy, which is driving up prices.
forrestthewoods 3y ago
Yes, you can refinance to a lower rate. It’s easy and people do it all the time. There is some cost overhead so you don’t do it everytime rates drop a tiny bit. But if they drop more than 1% it’s easily worth it.
- tzs 3y ago
  > Yes, you can refinance to a lower rate. It’s easy and people do it all the time. It's almost unbelievable how easy it can be. I got a call from the company that held my mortgage asking why I hadn't responded to the refinance offer they had sent me. I told them I wasn't aware of any such offer. They said they had FedExed an offer to me a couple weeks earlier. I went and looked on the front porch, and sure enough there was a thick FedEx package there. I hadn't noticed that because I used the back door as my main entry/exit door. Inside was all the paperwork, prefilled, for a refinance with instructions that said all I had to do to accept was call them and tell them, and then they would send a notary to meet me at home or at my office with a copy of the documents for me to sign.
positr0n 3y ago
It's easy to refinance at a lower rate. You essentially just pay for and qualify for a new mortgage, the fact that it's a refinance and not a new house you're buying is mostly immaterial. So you're out a few grand in fees, and if you somehow become less creditworthy it may not work. When interest rates first spiked it seems like the prevailing wisdom was that they wouldn't stay high for long, so buyers should just swallow the higher monthly payment "for a year or two" then plan to refi. I don't hear that advice much anymore!
bhawks 3y ago
The American mortgage market is very unique from the perspective that it has 10, 15 and 30 year fixed rate debt. There are generally no prepayment penalties and no balloon payment (each payment is the same amount even the last one). You can pay down extra any time you want and it reduces your principal appropriately. The maturities and payment structures are quite generous compared to many other countries mortgage products. Of course there are shorter maturities and different types of adjustable rate mortgages but these are not popular (fallout from 2008 crisis and the general low interest rate environment). Edit: there is also 40 year fixed products starting to be offered.
- thinkerswell 3y ago
  What is the cause of it being do different from the rest of the world?
  - topspin 3y ago
    Government policy. The US has multiple quasi-government mortgage market makers (because just one is somehow not enough...) that define baseline terms for home mortgages, and everyone must play their tune. See Fannie Mae and Freddie Mac. Seriously. That's what they're named. There is another one tangentially involved as well that I can't remember the name of.
    - Gibbon1 3y ago
      Exactly. Fannie Mae and Freddie Mac buy about around 70 percent the mortgages issued by banks. They only by conforming mortgages, meaning conforming to their terms. https://www.investopedia.com/articles/economics/08/fannie-mae-freddie-mac-credit-crisis.asp https://www.investopedia.com/articles/economics/08/fannie-ma... See also the Federal Housing administration which insures loans. https://www.hud.gov/program_offices/housing/fhahistory https://www.hud.gov/program_offices/housing/fhahistory One can see there really isn't a laissez faire free market at work when it comes to housing in the US. The government is in deep and it's regulated out the ying yang.
jsolson 3y ago
A perspective from an American: - Yes, typically we can refinance whenever we like, _but_ it extends the mortgage for a 30 year term, along with additional direct immediate costs (plus human inertia). Unless interest rates were alarmingly high for your last go-round (ehem), you're directly incentivized and indirectly likely to not do so. - I own properties in Canada (yay Commonwealth!). The notion of a 30-year fixed does not exist. One can get a 25-year amortization, but typically only with a 5-10 year guarantee for a fixed rate. - As an American, Canadians are insane for buying into this system. Our system is so much more favorable to anyone with good enough credit to be approved for a loan it's literal comedy. Also our standards for approving someone for a loan seem to be lower (that said, I had no credit history in Canada when I started this adventure, so perhaps residents get a better deal). - As a property investor, I'm happy to control for the cash I sink into my investments in interest versus the returns I get from rental revenue. Combining that with exchange rates and US interest rates versus Canadian, I <3 Canada. - Fully variable interest mortgages are for suckers (and in that regard, I do have some regrets). (bias: I <3 Canada regardless -- I'd live in Whistler, BC if circumstances allowed)
- gambiting 3y ago
  >>but_ it extends the mortgage for a 30 years How come? Here in UK you just remortgage for the remaining term of your mortgage, if you have 14 years left you just remortgage for 14 years. Is that something that you have to to do in America, or just what most people choose to do?
  - tzs 3y ago
    In the US lenders generally only offer a few options for the lengths of fixed rate mortgages, with 15 and 30 years probably being the most common. There is generally no prepayment penalty here, so if you want some length that isn't one of the standard ones you can just get a longer one and then pay some extra principle each month to pay it off over the timeframe you wanted.
    - blacksmythe 3y ago
      It is amazing how much less time it takes to pay off a 30 year mortgage if you increase the payments 10%. The first good many years are paying mostly just the interest.
thelastgallon 3y ago
Yes, you can refinance any time with nearly no cost. During covid years, a lot of homeowners refinanced multiple times, each time with a small bonus (under 3K) for refinancing. What people don't understand though is interest payments are front-loaded. Most of the early payments will be almost all interest, and with frequent refinances most of them are paying interest all time time, extending mortgage by a few years. Most only think of cash flow and the payments appear lower, if you don't think about those extra years. https://thepillmethod.com/help-us-celebrate-the-80th-anniversary-of-the-amortized-30-year-mortgage/ https://thepillmethod.com/help-us-celebrate-the-80th-anniver...
- hnav 3y ago
  you can just pay off the loan faster and put whatever interest cut you got towards the principal?
  - analognoise 3y ago
    If you're fixed at 2 or 3%, why bother? You can make a better return putting your money elsewhere.
    - saiya-jin 3y ago
      a common mantra, but almost nobody actually does it
      - gorjusborg 3y ago
        Also, the return is guaranteed in the case of mortgage repayment. The returns from investment are estimated based on historical performance. You can lose money investing, not so paying off a mortgage early.
        bitshiftfaced 3y ago
        At the very least, during periods when interest rates are significantly above your mortgage rate, such as now, you should put it in a money market account instead of in your mortgage. It's the same amount of risk, but it's liquid. Really, you could do a long term Treasury bond for the same reasoning (same risk, same liquidity).
jeanloolz 3y ago
Fixed rate is really common in Europe, definitely not a US thing.

gknapp 3y ago

It's a very interesting time indeed for the housing market! These next 6-12 months are going to tell us something very big about the economy, crash or no crash. If anything, however, the Fed has built up an ability to drop rates if things go awry, so there's padding in the cushion if a fall does happen. An interesting stat: We're almost back to our 2022 quantity of _new_ listings in October [1]. That's substantial because we've hovered around 20% below last year's number for just about every other month this year. One of the big stories of real estate is that sellers don't want to sell because they all locked in killer rates on their current homes, and buyers can't afford to buy with home prices AND mortgage rates what they are. So, seeing even a slight increase in new listings (or the lack of a seasonal dropoff) is maybe an early indication of an easing of that stalemate. At the same time, time on market is still really low, which means that sellers are tapping into the high levels of demand that still exist. As a result, overall inventory isn't increasing. All told though, even with those slight indicators, it's still a really tough time to be a buyer, and for the real estate market overall. The best hope that most have is that the dam leaks more, or even breaks on listings, and of course, if prices start to fall meaningfully, folks will want to cash out high, and you might get a proper "crash". I personally don't really see it, but anything can happen, and we'll know soon enough! [1]: https://www.redfin.com/news/data-center/ https://www.redfin.com/news/data-center/ (Disclaimer, I work at Redfin)

dehrmann 3y ago
> it's still a really tough time to be a buyer The fact that I heard this exact same statement when interest rates were at 30-year lows really goes to show how constrained the supply is.
- roenxi 3y ago
  I doubt low interest rates help buyers all that much. If there are 3 properties on the market and 4 buyers, it doesn't matter what interest rates are, the 3 highest-earning buyers are going to get the houses and one will miss out. The amount of money borrowed might go up and down, but there is a physical balance equation that must be satisfied which doesn't care about the financial situation. In theory, low interest rates will reallocate resources from other sectors of the economy to housing, causing more to be built. In practice I don't know how big a factor this is though - I'm used to there being regulatory restrictions that prevent new housing being built in high-demand areas. But that might be an Australia thing. Regardless it'd lag interest rate changes by a few years because it takes time to organise new construction.

alkibiades 3y ago

it’s strange to me how little attention this is really getting. you’d think politicians would run on solving the housing affordability crisis when half the country is having their life ruined by it.

toomuchtodo 3y ago
It will take years to bring supply online. There is no short term fix to build millions of housing units. Also, solving housing affordability drives down real estate prices. Not great as a politician depending on your constituency.
- jeffbee 3y ago
  The United States builds millions of new homes every month. To increase that rate by 50% or 100% would not be so difficult.
  - dpkirchner 3y ago
    It's more like 100k-200k homes completed per month: https://fred.stlouisfed.org/series/COMPUTNSA https://fred.stlouisfed.org/series/COMPUTNSA
    - toomuchtodo 3y ago
      Additional citations: https://www.axios.com/2023/06/20/housing-shortage-prices-high https://www.axios.com/2023/06/20/housing-shortage-prices-hig... https://www.freddiemac.com/research/insight/20210507-housing-supply https://www.freddiemac.com/research/insight/20210507-housing... > As of the fourth quarter of 2020, the U.S. had a housing supply deficit of 3.8 million units. These 3.8 million units are needed to not only meet the demand from the growing number of households but also to maintain a target vacancy rate of 13%. Between 2018 and 2020, the housing stock deficit increased by approximately 52% (See Appendix 1 for detailed calculations of the Housing Supply Deficit).
- Moldoteck 3y ago

changoplatanero 3y ago

I naively thought that if mortgage rates are 8% then I ought to be able to invest in a mortgage backed security for an 8% annual return. It turns out that, in the process of creating the mortgage backed securities, various entities take fees and the portion of the mortgage that goes to the investor can be several percent less than the interest rate that the homeowner pays.

b112 3y ago
Some people have variable rate mortgages, are you sure you want to invest in such securities?!
freeAgent 3y ago
Rates just reached 8%. Where do you think all the securitized 8% mortgages come from? People actually have to lock that rate and close. Then securitization can happen, and of course during that process there will be fees taken out. If you want 8%, become a direct lender.
throwaway2037 3y ago
Why buy an MBS when you can buy a mortgage pool from Fannie or Freddie directly? The fees are lower, but you own the full mortgage -- and the full risk of default from borrowers. MBS is better for Alt-A and below credit scores, where you want to protect yourself against losses.
- SilasX 3y ago
  Link to where you would do this?
  - throwaway2037 3y ago
    Mortgage pools are only for institutions and/or very wealthy (private banked) individuals. If you are already private banked, ask your rep.
    - 3y ago

kdwikzncba 3y ago

Why are mortgage rates still going up when inflation is coming back down?

riku_iki 3y ago
probably inflation is still high compared to some benchmark used by fed.
jessriedel 3y ago
You can have zero inflation but high time-value of capital.
HDThoreaun 3y ago
Fed hasn't started buying bonds or lowering overnight rate
mips_r4300i 3y ago
The fed can say whatever it wants but I can go to the grocery store and show you inflation is still increasing. Pretty much all consumer stuff is still going up, despite how much the fed wants to have it not be true.
- SantalBlush 3y ago
  The Fed says prices are still increasing, so what is this "the fed wants to have it not be true"? Have you actually listened to or read what Powell has said?
bitshiftfaced 3y ago
If people believe that the Fed will drop the rate back to nothing at some date close to the future, then investors will behave as though the interest rates aren't increasing, even if they are. In that case, it won't impact inflation. The Fed has to make the rate increase "real", so they must keep increasing the rate and/or keeping it at high levels.

nologic01 3y ago

8% return in fixed income markets will certainly do a number on stock markets up and down and down and up and up and down and

pojzon 3y ago

Wow thats so low. Here we have 9% and its the „good” offer. Soon Ill be working only to pay off interest. The system we have is amazing and totally does not exploit honestly working ppl.

gulikoza 3y ago
That's really bad. I refinanced last month to a 3.7% fixed 20-year because the fixed rate here is currently lower than base variable rate (6-month Euribor at 4.1%, which would mean about 5.5% effective rate after the bank markup).

ShadowBanThis01 3y ago

It's truly pathetic how Congress and the media are giving the Biden administration a free pass on refusing to acknowledge that the endless interest-rate hikes AREN'T WORKING. The old models aren't holding up today, because the problem isn't money supply. It's monopoly and oligopoly. We have four meat suppliers, who are now making record profits after whining about a "labor shortage." We have a national crisis after ONE baby-formula factory is shut down for health-code violations. We have what, three suppliers of high-speed Internet, and we're way behind the rest of the civilized worled. And on and on. This "inflation" is straight-up ripping off of the public by huge corporations, abetted by our "representatives."

derstander 3y ago
> It's truly pathetic how Congress and the media are giving the Biden administration a free pass on refusing to acknowledge that the endless interest-rate hikes AREN'T WORKING. The President doesn’t control interest rates, the Federal Reserve does. And the President does not control the Federal Reserve. The President nominates the board of governors and the Senate confirms them. The current Federal Reserve chair is actually a Republican first nominated by Trump and then nominated for a second term by Biden (in fact, against pressure from the more left-leaning Democrats like AOC and Warren). Laying the interest rate hikes solely at the Biden administration’s feet expresses a lack of understanding about how the Federal Reserve and interest rates work in the US. There’s plenty of blame to go around here. Edit: here’s a link to the vote for the current chair’s renomination (https://www.senate.gov/legislative/LIS/roll_call_votes/vote1172/vote_117_2_00176.htm https://www.senate.gov/legislative/LIS/roll_call_votes/vote1...) I think it’s interesting because you see as diverse a group as Cruz, Hawley, Rubio, Sanders, and Warren voting together (nays) against the overwhelming majority of yeas (80 to 19 with 1 senator abstaining).
- junofan 3y ago
  As Truman once said, “The buck stops somewhere else. Probably with the other party. You just don’t understand how these things work.”
  - 3y ago

riantogo 3y ago

Yesterday my friend bid on a house for $3.7M. There were double digit number of bidders. Lost to another buyer who got it for $3.8M all cash. Not saying it is the same everywhere, but where I live it is the norm. Nothing seems to bring down (or even slow) house prices.

gedy 3y ago
At that price level, it’s a whole different market and set of buyers. If that's in California, the property taxes alone would be like $3400 a month. I doubt people with that kind of money are troubled by variations on interest rates.

gumballindie 3y ago

Yeah so property prices will go down as a result but considering most people in the west cant afford buying without a mortgage it will still be expensive for the average joe. So this is good news for cash buyers, who will make a killing once rates drop, and bad news for wage workers.

mikhailfranco 3y ago

It is egregious that capital gains taxes (including real estate), are based on the nominal value, which means that owners (sellers) of capital pay taxes on inflation. The nominal value goes up, the relative real value is unchanged, but taxes are due.

thelastparadise 3y ago
Even if they accounted for inflation in the tax computation, it would still be wack. The official inflation number is severely understated (exludes food, energy, and housing).
HDThoreaun 3y ago
It is egregious that capital gains are taxed at less than half the rate normal income is for even moderate middle class earners.
- deleted 3y ago
  [deleted]

irrational 3y ago

So people near me just put their house on the market... in October... with 8% mortgage rates.... I have no idea what they are thinking. I know they aren't putting it on the market because of financial or health or family reasons. I just boggles my mind.

ChatGTP 3y ago
Well it could be 10% on 2 years or less?
- jrumbut 3y ago
  This is very true! 8% is not that high historically: https://money.usnews.com/loans/mortgages/articles/historical-mortgage-rates https://money.usnews.com/loans/mortgages/articles/historical... It's the past several years that were the anomaly. There's a legitimate chance we don't see rates like we did in 2021 again for decades.
jjtheblunt 3y ago
People buy houses with cash is what they’re thinking.
- spondylosaurus 3y ago
  My parental units literally just sold their house to a cash buyer... so yep, exactly this. Final sale was over a million dollars by the way. Where people come up with that kind of cash is beyond me, but they're coming up with it one way or another.
  - EB66 3y ago
    > Where people come up with that kind of cash is beyond me, but they're coming up with it one way or another. A "cash buyer" just means that the buyer didn't open a new mortgage to close the sale. Cash buyers often bring in cash from other interest-accruing loans -- such as HELOCs or portfolio loans. Foreigners or irregular income earners are a couple examples of people who might not qualify for a conventional mortgage and would need to tap into alternative loans to buy a house and thereby become a "cash buyer". Cash offers are also considered more competitive (they close faster), so someone might make a cash offer (via other loans) just to make their offer have a higher chance of succeeding.