Hacker News Reader

Comment by pjerem | Hacker News Reader

I don’t know how it works in US but can’t you just opt for fixed interest rates ?

Yes, you can, but it doesn't address the problem mentioned above.

>> the declining interest rates that fueled past appreciation don't have much room left to move down, and that they'll be underwater on that huge loan if interest rates go up* and the value of the property declines.

The price you can charge for something is related to how much other people can pay for it. If houses are usually bought with loans (which they are), then the availability of loan funding is a major influence on the price of a house. When funding is plentiful -- another way to say this is that interest rates are low -- the price of a house will be high. When funding is hard to find -- or interest rates are high -- the price of a house must drop to compensate for that.

In practice, when interest rates went sky high in 1980 the price of home didn't actually drop very much. Instead, liquidity dried up. Nobody bought homes; nobody sold homes. The few people who had to sell their homes got screwed, but in general people rarely have to sell their homes unless they get transferred to a new office and don't have enough to buy a house there in cash (which is very attractive when interest rates are high; when borrowed money is expensive, houses get cheap to match what you can borrow, and if you happen to have money, you just don't borrow and take advantage of the cheap prices to pay cash).

It is common for people that can afford to pay the mortgage/house keep it even in a down market. IT makes housing crisis a lot longer to weather out because the vast amount of capital gets locked in an asset that does not yield its prices.

The bleeding ends up being slow, a decades wait to see any returns while maybe the stock market soars.

I am not very optimistic on homeowners in a downturn, UNLESS the government bails them out.

The standard mortgage in the US is a fixed rate 30 year mortgage. You can get lower rates for 10, 15, or 20 year mortgages. Also generally you pay an extra fee (PMI) monthly if you put less than 20% down. Adjustable rate loans and interest-only loans are still available but those are really not a good option unless you are not planning on staying in the home long.

There are some other options out there for veterans or first time buyers, but those are the normal options.

Yes, most people do, it's just that increases in rates have a tendency to cause decreases in homes values because a larger proportion of monthly payments will now have to go towards paying the interest.

Yeah, you can. A random example I found from Rocket Mortgage is a 3.25% fixed interest rate for a $200,000 house.

https://www.rocketmortgage.com/learn/30-year-fixed-mortgage-...

2.1% if you but ~$5k in points right now.

Reply on news.ycombinator.com