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Higher interest rates make building new housing more expensive. Fewer new builds + higher costs = higher rents.

by nostromo 2y ago

lenerdenator 2y ago
What you're seeing are not extraordinarily high interest rates.
- tesrx 2y ago
  OP said "higher interest rates" relative to historic lows in '20-21. Your comment does not negate the effect that interest rates have had on affordability. The last time interest rates were this high, home prices were significantly lower than what they are now. Wages have not kept up with inflation.
  - lenerdenator 2y ago
    Being relative to historic lows in anything doesn't say much, though.
bombcar 2y ago
The biggest thing higher rates is doing is preventing people from moving when they might otherwise want to, because going from 3% to 7% will double their monthly. This results in fewer people "upgrading" into new construction, which further constricts the "starter home" pool (nobody builds starter homes).
bluGill 2y ago
Higher interest rates are not that much a hit on new building - the construction loans don't last long and so while there is more cost it isn't very significant compared to all the other costs. They are a problem to owners though - if you want to own a building you will pay a lot more. There is a subtle difference, and this is why new house construction is still going strong - there are enough people who can afford a loan who want a new house as to make it worth building. Having been in construction I call tell you a contractor can build two identical houses in the same neighborhood, with the only difference being the contractor is planning on selling one after it is built, while the other a buyer is exists for the house. The second house will costs at least $20,000 more than the first, the only difference being the buyer will upgrade lights, doors, flooring, countertops and so on. All those little $300 upgrades add up.

Higher interest rates make building new housing more expensive. Fewer new builds + higher costs = higher rents.

lenerdenator 2y ago

What you're seeing are not extraordinarily high interest rates.

tesrx 2y ago
OP said "higher interest rates" relative to historic lows in '20-21. Your comment does not negate the effect that interest rates have had on affordability. The last time interest rates were this high, home prices were significantly lower than what they are now. Wages have not kept up with inflation.
- lenerdenator 2y ago
  Being relative to historic lows in anything doesn't say much, though.

bombcar 2y ago

The biggest thing higher rates is doing is preventing people from moving when they might otherwise want to, because going from 3% to 7% will double their monthly. This results in fewer people "upgrading" into new construction, which further constricts the "starter home" pool (nobody builds starter homes).

bluGill 2y ago

Higher interest rates are not that much a hit on new building - the construction loans don't last long and so while there is more cost it isn't very significant compared to all the other costs. They are a problem to owners though - if you want to own a building you will pay a lot more. There is a subtle difference, and this is why new house construction is still going strong - there are enough people who can afford a loan who want a new house as to make it worth building. Having been in construction I call tell you a contractor can build two identical houses in the same neighborhood, with the only difference being the contractor is planning on selling one after it is built, while the other a buyer is exists for the house. The second house will costs at least $20,000 more than the first, the only difference being the buyer will upgrade lights, doors, flooring, countertops and so on. All those little $300 upgrades add up.