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I think that was the main reason for higher interest rates -- it makes the monthly payments higher, which pushes down the total home price. But it only works i
by derekp7 3y ago
I think that was the main reason for higher interest rates -- it makes the monthly payments higher, which pushes down the total home price. But it only works if there is inventory. And inventory only happens when people are in a "forced sell" position, such as needing to relocate for their job (back to office push for example). A lack of inventory typically will also spur on new construction, but even in areas where construction can happen there is the compounding issue of higher timber prices. So with lumber prices coming down, that should relieve the inventory shortage (again, in areas where land isn't too high and new builds are allowed to happen).
The problem I have with this is that regular people that have to mortgage the house don't get any better deal (higher interest == higher monthly payments), but the forced price reduction does give a better deal to anyone who can pay cash (investors for example).
- vkou 3y agoYou can refi your low-principal, high-interest mortgage later, if interest rates ever come down. You can't renegotiate your high-principal, low-interest mortgage later. (Well, you can, if rates go up, but why would you want to?)
- fragmede 3y agolook into mortgage recasting.
- lotsofpulp 3y agoThat is just paying extra to lower the principal. How does that help if you have a high principal? You are still paying it. With a low principal, high interest rate mortgage, refinancing to a lower interest rate reduces the amount you were going to pay, without you having to spend any money. For example, lots of people that bought in 2015 to 2019 at higher interest rates made out great, they paid a lower price for their house, then refinanced in 2020 to lower their interest costs (and sometimes even got paid to refinance).
- thmsths 3y agoRegarding your last point, wouldn't higher interest make housing a less attractive investment since now you need housing to beat the higher returns from bonds?
- toomuchtodo 3y agoYes. The higher the risk free rate goes, the more compelling the return potential must be to attract investment. Easy opportunities to arbitrage dry up.
- carlosjobim 3y agoThe main "forced sell" event is that people die. Yet prices are not coming down even in countries with stable or rapidly declining populations. So shortage it isn't.
- lotsofpulp 3y agoWhich country has a rapidly declining population?
- carlosjobim 3y agoMost of the planet has below-replacement birth rates currently in a rapidly declining trend. These declining birth rates are not only leading to rapidly declining population, but to exponentially declining population. Right now, most homes that should be for families are inhabited by one or two elderly persons, while almost all real estate worldwide is owned by the elderly or abstractions they control, such as funds etc. Unless you invent an elixir that makes people live 200 years or if the elderly start burning down their houses out of spite, there will be no housing shortage.
- deleted 3y ago[deleted]
- vkou 3y ago> Most of the planet has below-replacement birth rates currently in a rapidly declining trend. No, most of the planet has above-replacement birth rates. The developed world has below-replacement birth rates. People migrate from the former to the latter, resulting in net population growth in ~nearly country in the world. There are only a handful of countries experiencing population decline. Japan, Venezuela (Shocker), Russia (Shocker), Ukraine (Also a shocker...), and now that I think of it, almost all of the rest are other former Soviet Block countries. Their populations are declining, because people are actively getting the hell out of them, and nobody wants to/is allowed to move into them.
- 3y ago