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> "The only way seems to be interest rates on personal loans and mortgages." Yes, exactly. As noted in the article and the underlying study, 80% of car purcha

> "The only way seems to be interest rates on personal loans and mortgages." Yes, exactly. As noted in the article and the underlying study, 80% of car purchases are done via a loan and financing is not part of the inflation measure. When you look at buying a home, most are also done via loans and still financing is not part of the measure. In both cases, interest rates are a factor in affordability and cost. > Blindly stacking interest rates on top of CPI doesn't really make sense Well then it's good that's not what they're doing.

usaar333 2y ago
I think this is valid for car purchases. I don't buy this is reasonable for home purchases. They already factor imputed rent in CPI; you'd have to somehow do some sort of complex weighing of own vs rent to factor mortgages (complex since it only affects new purchases given most folks are on fixed rate mortgages)
robocat 2y ago
> interest rates are a factor in affordability and cost Paradoxically over a long term, interest rates don't affect house affordability much. People bid on houses at the limit of what they can spend - the constraint is their income not the interest rate. As interest rates fall, people pay the same interest payments but bid higher on the house price (driving house prices up). As interest rates rise, people spend the same amount monthly (on interest payments) but borrow less in total and can bid less on houses. It is a steady-state argument, so other things do matter (income changes, mortgage qualification rules, immigration into the area, dynamic effects of interest rate changes). Rent has other factors but the constraint of income has parallel effects.
- leereeves 2y ago
  That doesn't seem to be true now. Home prices have risen despite higher interest rates.
  - robocat 2y ago
    That is irrelevant to what I wrote. If interest rates remain the same for a longer period then houses must sell for a price where people can pay their mortgages. Household income is a hard constraint. People can't pay more for interest payments than they earn. House prices can still rise if: • people can pay more on interest e.g. reduce their spending in other areas e.g. increase income using overtime. e.g. rent or AirBnB rooms. • Or if they can lower mortgage interest costs by increasing deposits/equity e.g. sell down other investments, or borrow from friends/family e.g. downsize house. • Or if more wealthy people move into the area And it is a market - I am talking about how individuals drive the market price but obviously the price is set by successful sales and purchases. There is a lot of unmet demand by people who can't quite afford a deposit/mortgage.
    - leereeves 2y ago
      > If interest rates remain the same for a longer period then houses must sell for a price where people can pay their mortgages. No, houses can stay expensive even if no one lives in them, as we see in China. Or rents can rise far above affordable levels, as they have, and people can end up paying more in rent than they could qualify for with a mortgage. Or people can take roommates or boarders to afford the higher costs.
      - robocat 2y ago
        Irrelevant whether someone is living in it or not. And I don't think China is a relevant example when discussing mortgages in my country or the US. If the market is driven by mortgages (presuming there are not other reasons why the market is disfunctional) then someone is paying the mortgage (or the opportunity cost of investing cash). The market price mostly depends on how much people are capable (and willing) to spend on interest payments. Somewhat different dynamics in New Zealand because to an approximation our mortgages are all variable so we see house prices shift over a couple of years as interest rate changes (plus our interest rates are often higher than US rates). US 30 year mortgages at a fixed rate mean market prices drop more slowly, but I'm guessing can still rise quickly. Interest rates went up in NZ and two years later property prices are down 10% currently I think (plus sentiment still really matters too). You can still fiddle with terms and a bunch of other free variables, but interest payments are one of the most significant variables. We had an earthquake in my city and uninsurable houses could not get mortgages and the price to buy one of those houses dropped drastically. https://hn.algolia.com/?dateRange=all&page=0&prefix=true&query=as-is%20by%3Arobocat&sort=byDate&type=comment https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que... > Or people can take roommates or boarders to afford the higher costs. I agree with you so much that I already previously mentioned that ("rent or AirBnB rooms") in the comment you are replying to!

usaar333 2y ago

I think this is valid for car purchases. I don't buy this is reasonable for home purchases. They already factor imputed rent in CPI; you'd have to somehow do some sort of complex weighing of own vs rent to factor mortgages (complex since it only affects new purchases given most folks are on fixed rate mortgages)

robocat 2y ago

> interest rates are a factor in affordability and cost Paradoxically over a long term, interest rates don't affect house affordability much. People bid on houses at the limit of what they can spend - the constraint is their income not the interest rate. As interest rates fall, people pay the same interest payments but bid higher on the house price (driving house prices up). As interest rates rise, people spend the same amount monthly (on interest payments) but borrow less in total and can bid less on houses. It is a steady-state argument, so other things do matter (income changes, mortgage qualification rules, immigration into the area, dynamic effects of interest rate changes). Rent has other factors but the constraint of income has parallel effects.

leereeves 2y ago
That doesn't seem to be true now. Home prices have risen despite higher interest rates.
- robocat 2y ago
  That is irrelevant to what I wrote. If interest rates remain the same for a longer period then houses must sell for a price where people can pay their mortgages. Household income is a hard constraint. People can't pay more for interest payments than they earn. House prices can still rise if: • people can pay more on interest e.g. reduce their spending in other areas e.g. increase income using overtime. e.g. rent or AirBnB rooms. • Or if they can lower mortgage interest costs by increasing deposits/equity e.g. sell down other investments, or borrow from friends/family e.g. downsize house. • Or if more wealthy people move into the area And it is a market - I am talking about how individuals drive the market price but obviously the price is set by successful sales and purchases. There is a lot of unmet demand by people who can't quite afford a deposit/mortgage.
  - leereeves 2y ago
    > If interest rates remain the same for a longer period then houses must sell for a price where people can pay their mortgages. No, houses can stay expensive even if no one lives in them, as we see in China. Or rents can rise far above affordable levels, as they have, and people can end up paying more in rent than they could qualify for with a mortgage. Or people can take roommates or boarders to afford the higher costs.
    - robocat 2y ago
      Irrelevant whether someone is living in it or not. And I don't think China is a relevant example when discussing mortgages in my country or the US. If the market is driven by mortgages (presuming there are not other reasons why the market is disfunctional) then someone is paying the mortgage (or the opportunity cost of investing cash). The market price mostly depends on how much people are capable (and willing) to spend on interest payments. Somewhat different dynamics in New Zealand because to an approximation our mortgages are all variable so we see house prices shift over a couple of years as interest rate changes (plus our interest rates are often higher than US rates). US 30 year mortgages at a fixed rate mean market prices drop more slowly, but I'm guessing can still rise quickly. Interest rates went up in NZ and two years later property prices are down 10% currently I think (plus sentiment still really matters too). You can still fiddle with terms and a bunch of other free variables, but interest payments are one of the most significant variables. We had an earthquake in my city and uninsurable houses could not get mortgages and the price to buy one of those houses dropped drastically. https://hn.algolia.com/?dateRange=all&page=0&prefix=true&query=as-is%20by%3Arobocat&sort=byDate&type=comment https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que... > Or people can take roommates or boarders to afford the higher costs. I agree with you so much that I already previously mentioned that ("rent or AirBnB rooms") in the comment you are replying to!