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> That’s in part thanks to mortgage rates. The monthly payment on a new home has increased by more than 50 percent in the past three years, as 30-year mortgage

> That’s in part thanks to mortgage rates. The monthly payment on a new home has increased by more than 50 percent in the past three years, as 30-year mortgage rates have climbed from less than 3 percent to nearly 8 percent. Sounds like it's not just "in part", but more than 100% due to rising interest rates. A $1mm 30 year mortgage at 3% fixed means paying $4200 a month [0]. The same mortgage at 8% requires monthly payments of more than $7,000 [1]. If the author's figures are accurate, houses have not got more expensive at all. Credit has become more expensive. [0] https://www.saving.org/loan/loans.php?loan=1,200,000&rate=3&down=200,000&years=30 https://www.saving.org/loan/loans.php?loan=1,200,000&rate=3&... [1] https://www.saving.org/loan/loans.php?loan=1,200,000&rate=8&down=200,000&years=30 https://www.saving.org/loan/loans.php?loan=1,200,000&rate=8&...

hiddencost 3y ago
Only people who can do all cash offers can afford a home
pixl97 3y ago
Well, kind of both. Houses increased in prices until Q3 2022. https://fred.stlouisfed.org/series/ASPUS https://fred.stlouisfed.org/series/ASPUS After that point the 'sale' value dropped, but the interest increase has made houses massively more expensive.
zukzuk 3y ago
Worth noting that this way of thinking is true in the inverse too — when interest rates were super low, house values didn’t really go up, only credit got cheaper. In other words, the appreciation in costs is not about house value, it’s about the cost of a loan. But underneath, it really is just under-supply of homes. People are competing for limited housing, but instead of hitting a natural ceiling of affordability, they’ve continued to compete on prices by out-borrowing each other to offer ever-higher bids. We now seem to be hitting the next ceiling — buyers are unable leverage their bids any higher. I can’t wait to see what “innovations” the financial sector comes up with to create a new ceiling. I’m guessing fractional ownership or something like that.
- lotsoweiners 3y ago
  There is a new thing happening though as well. Existing homeowners with 3-4% mortgages are not listing their homes for sale very often anymore because they aren’t going to take 7% mortgage on the new property. This is keeping home prices pretty high. I don’t see a way for monthly mortgage payments to become affordable without this being addressed.
  - bryanlarsen 3y ago
    That it is not being addressed is a ridiculously pure market failure. Let's say Jane & Joe have a mortgage at 3%, would like to move but don't have to move. The only reason they're not moving is because they're unwilling to take on a 7% mortgage. Somebody out there is holding the other end of that 3% mortgage, and would love to exchange that mortgage for one at a higher rate. If Jane & Joe could get into the same room as their mortgage holder they would quickly hash out a compromise, exchange their 3% mortgage for a 5% mortgage; the canonical win-win situation that's supposed to happen in a market. Both sides are willing to make a deal, so why can't they? But it's not happening because the bank they made the mortgage with doesn't actually hold the mortgage, it's bundled and sliced and sold on. This is a huge market opportunity, and you'd think that eventually the same forces that figured out how to slice & dice mortgages will figure out how to take advantage of this opportunity.
    - s1artibartfast 3y ago
      This reminds me of the idea of people buying their debt out of collections, and I think it has the same price discovery challenges. You say 5% is a win win compromise between 3 and 7, but how does any bank know that Jane and Joe wouldnt have paid 7. Banks don't have a good tool to screen and price discriminate between customers for this to work.
      - bryanlarsen 3y ago
        Statistics. If you have a pool of people, some of whom would not be willing to jump without a good rate and some of whom would be, you offer it to everyone and you make more money than those who don't offer the good rate. This effect is known as the "consumer surplus". People willing to pay more get the same price as those who aren't.
ren_engineer 3y ago
this is why the housing market is frozen up in the US, until job losses or something else force people to sell renters can't afford houses and home owners have no reason to sell because losing their 3% mortgage would force them to downgrade homes. Check out Canada housing prices where they only have 5 year fixed rates, 1.3M dollar homes 2 years ago are selling for 700-800K. This is what will happen in the US unless interest rates go down again, it's basic math.
- robocat 3y ago
  I didn't see this in Christchurch, New Zealand. Interest rates went up making mortgages harder to get. However house prices remained steady and you couldn't see much price reduction in the market because if someone has a house and a mortgage, they don't want to psychologically take a loss. Few people are willing to lose money. They can't buy in same market (downgrade) because so few people are selling and mortgages are harder to get. Mostly the few people selling are only selling because they are forced to due to their circumstances. The turnover (houses sold per month) dropped drastically. We don't have 30 year fixed. We have essentially variable rate interest rates (you can fix for up to 5 years (median fixes for 2 years) but after that the interest rate resets back to current market rate - you can fix again for a few years at current market).
oliwarner 3y ago
> A $1mm 30 year mortgage at 3% fixed means paying $4200 a month I feel like I'm teaching someone to suck eggs but but the price of houses has rocketed in both terms of absolute and relative-to-earnings. Your $1mm house was $300k two decades ago, and $60k two decades before that. 8%/30yr on those sums was affordable. Interest rates of 8-10% were normal in the 90s. Expensive credit isn't the problem.
bigblue19 3y ago
Use simple interest to pay down mortgage. Amortization is a scam paying all the interest up front.

hiddencost 3y ago

Only people who can do all cash offers can afford a home

pixl97 3y ago

Well, kind of both. Houses increased in prices until Q3 2022. https://fred.stlouisfed.org/series/ASPUS https://fred.stlouisfed.org/series/ASPUS After that point the 'sale' value dropped, but the interest increase has made houses massively more expensive.

zukzuk 3y ago

Worth noting that this way of thinking is true in the inverse too — when interest rates were super low, house values didn’t really go up, only credit got cheaper. In other words, the appreciation in costs is not about house value, it’s about the cost of a loan. But underneath, it really is just under-supply of homes. People are competing for limited housing, but instead of hitting a natural ceiling of affordability, they’ve continued to compete on prices by out-borrowing each other to offer ever-higher bids. We now seem to be hitting the next ceiling — buyers are unable leverage their bids any higher. I can’t wait to see what “innovations” the financial sector comes up with to create a new ceiling. I’m guessing fractional ownership or something like that.

lotsoweiners 3y ago
There is a new thing happening though as well. Existing homeowners with 3-4% mortgages are not listing their homes for sale very often anymore because they aren’t going to take 7% mortgage on the new property. This is keeping home prices pretty high. I don’t see a way for monthly mortgage payments to become affordable without this being addressed.
- bryanlarsen 3y ago
  That it is not being addressed is a ridiculously pure market failure. Let's say Jane & Joe have a mortgage at 3%, would like to move but don't have to move. The only reason they're not moving is because they're unwilling to take on a 7% mortgage. Somebody out there is holding the other end of that 3% mortgage, and would love to exchange that mortgage for one at a higher rate. If Jane & Joe could get into the same room as their mortgage holder they would quickly hash out a compromise, exchange their 3% mortgage for a 5% mortgage; the canonical win-win situation that's supposed to happen in a market. Both sides are willing to make a deal, so why can't they? But it's not happening because the bank they made the mortgage with doesn't actually hold the mortgage, it's bundled and sliced and sold on. This is a huge market opportunity, and you'd think that eventually the same forces that figured out how to slice & dice mortgages will figure out how to take advantage of this opportunity.
  - s1artibartfast 3y ago
    This reminds me of the idea of people buying their debt out of collections, and I think it has the same price discovery challenges. You say 5% is a win win compromise between 3 and 7, but how does any bank know that Jane and Joe wouldnt have paid 7. Banks don't have a good tool to screen and price discriminate between customers for this to work.
    - bryanlarsen 3y ago
      Statistics. If you have a pool of people, some of whom would not be willing to jump without a good rate and some of whom would be, you offer it to everyone and you make more money than those who don't offer the good rate. This effect is known as the "consumer surplus". People willing to pay more get the same price as those who aren't.

ren_engineer 3y ago

this is why the housing market is frozen up in the US, until job losses or something else force people to sell renters can't afford houses and home owners have no reason to sell because losing their 3% mortgage would force them to downgrade homes. Check out Canada housing prices where they only have 5 year fixed rates, 1.3M dollar homes 2 years ago are selling for 700-800K. This is what will happen in the US unless interest rates go down again, it's basic math.

robocat 3y ago
I didn't see this in Christchurch, New Zealand. Interest rates went up making mortgages harder to get. However house prices remained steady and you couldn't see much price reduction in the market because if someone has a house and a mortgage, they don't want to psychologically take a loss. Few people are willing to lose money. They can't buy in same market (downgrade) because so few people are selling and mortgages are harder to get. Mostly the few people selling are only selling because they are forced to due to their circumstances. The turnover (houses sold per month) dropped drastically. We don't have 30 year fixed. We have essentially variable rate interest rates (you can fix for up to 5 years (median fixes for 2 years) but after that the interest rate resets back to current market rate - you can fix again for a few years at current market).

oliwarner 3y ago

> A $1mm 30 year mortgage at 3% fixed means paying $4200 a month I feel like I'm teaching someone to suck eggs but but the price of houses has rocketed in both terms of absolute and relative-to-earnings. Your $1mm house was $300k two decades ago, and $60k two decades before that. 8%/30yr on those sums was affordable. Interest rates of 8-10% were normal in the 90s. Expensive credit isn't the problem.

bigblue19 3y ago

Use simple interest to pay down mortgage. Amortization is a scam paying all the interest up front.