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Comment by jbverschoor | Hacker News Reader

Doesn't make sense. Uses price-to-rent, mortgage-to-gdp etc. Mortgage rates are between 0.8 and 1.8% here. Rent is about equal to the interest paid. Also, using the GDP for major cities is wrong.

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Price-to-rent and price-to-income ratios are useful metrics in diagnosing if a price rise is a true 'bubble' in the sense of misdirected investment. If the price to own is rising much faster than rentthe assumption is that excess capital is being directed into the market, rather than price rises driven purely by demand for housing. During the Great Bubble of the early 2000s, downpayments shrank and credit quality dropped as riskier and riskier (and blatantly fraudulent) credit practices were employed to prop up the market.

The thing is, it's not. It is the exact opposite until this quarter..

The price-to-rent here is more and more in favor of buying, even with prices up 100%. So I don't know what numbers they're looking at. This, partially, was stopped by limiting airbnb days per year and in certain parts completely. Also, the current covid situation is not helping for cities.

There is no risky credit anymore, it's more difficult to get a mortgage.. You need to bring quite some cash yourself, as they won't finance as much as they used to. And then some people don't even use financing at all, and simply pay cash.

Eventually those mortgage rates will go back above 4%, and what happens to housing prices when they do ?

The central bank won't let housing prices go down significantly, so rate will not increase rate back above 4% for a while.

oh, is it that easy?

It is that easy. Markets a booming, housing is booming, everything is booming because money of inflation by QE.

The cannot stop. At least not with the current currencies.

Ever heard of inflation? How can mortgage rates stay below inflation rates after massive money supply increases?

Yes, because mortgage rate is essentally set by supply of funds buying mortgage bonds and demand of people getting mortgages.

The Central Bank could just buy the mortgage bonds by putting the mortgage on the asset side of the book and issuing currency on the liability side of the book. The Bank of Canada only does this to manipulate the overnight interest rate, on Government of Canada bonds. However, all rules have been thrown out the window these days.

They will keep paying their 1%, as it's fixed for 10-30 years. In the mean time, inflation will catch up, and the house will be paid off.

Look at Japan's interest rates. It's not gonna happen, because it will destroy a complete country and surroundings.

In Toronto mortgages don't work this way. Fixed rate mortgages are typically 5 year terms. After the term is up they'll have to get the higher interest rate.

Well that's all up to the buyer, but most people are risk averse when it comes to their home. The default mortage term is 30 years, and most people fix the interest rate 20 or 30 years.

People who took a shorter term for the interest rate in the past 10 years, now have a housing cost of a few hundred euros, because it came down from 3-4%.

Mortgages where the amortization period and the term are equal are extremely rare in Canada. Most Canadian fix their interest for a term of 5 years (at a fixed rate or a fixed deviation from the prime rate).

lol, I hope you didn't sign on a mortgage and got amortization and term mixed up...

There's perhaps some regional confusion here. In the U.S, with conventional 30-year fixed mortgages, amortization and term are the same (30 years). There are also adjustable-rate mortgages which have a different term, eg. a 7/1 ARM has a fixed rate for 7 years, adjust annually thereafter, and is paid off in 30 years. Although ARMs are occasionally pushed by banks, most finance sites recommend against them and savvy buyers usually steer clear, because lots of buyers got in a lot of trouble from 07-09 because of them.

I gather, from this thread, that this is not the case in Canada and some other locales. But in the U.S, if you have a fixed-rate mortgage, your interest rate is fixed for the full length of the loan. It sounds like the OP is from Europe, where I guess things work similarly.

I’m not saying you shouldn’t lock down these amazing rates for the long run.

I’m saying that when mortgage rates double, the cost of buying homes will effectively double. Buyers simply won’t be able to afford to pay as much and prices will plateau or even dip.

There are people paying 1M for hones in my neighborhood that sold for 500k ten years ago because their mortgage will be only $2K a month. When it’s $4K a month those buyers are gone. That’s why I’m selling soon.

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