> Bonds will be wrecked, stocks will be wrecked, cash is wrecked, even gold
What will happen to the housing market?
What will happen to the housing market?
This will cause low supply -> high prices -> people who didn't buy are very screwed: they will face high prices together with high interest.
Like it or not there's a lot of chaff to cut in software engineering. How many of these SaaS businesses can survive, and how many engineers bought nice homes with massive salaries that might go poof?
it will be very small fraction of homeowners: those who bought in in last 2-3 years. All others will be significantly over water, and may take equity loans instead of selling houses to preserve low mortgage interest rates.
> Eventually
Eventually maybe. FED gave 20T free money to current home owners in addition to existing tax incentives, how long it will take to chew through them? Maybe generation?
I think most people are doing fixed rate loans in this economy, right? Genuinely asking. I think I might be misunderstanding this aspect of your point here.
In any case they won’t want to sell for a mortgage that effectively costs the same over a 30 year loan with a higher interest rate.
VC backed companies will start dropping like flies and the market will flood and salary requirements will drop fast.
If a homeowner rents their place for more than it costs them in mortgage + property taxes and makes $200 on top, that's fine and quite a nice deal. However you're suggesting they're also subsidizing their own rental and +$200.
That only makes sense if they're renting well below their means or in a different market entirely while their home is in an ultra prime location. If not the renter of their home should simply have rented out the place the owners are living at a substantial discount.
New Orleans has wild real estate. It’s not San Francisco but it’s way above the average income here and swings wildly from neighborhood to neighborhood. Home prices flip radically even just a few blocks over. We’re talking $400k->$800k if you move 5, maybe 6 blocks. Sometimes fewer than that - saw a near-turnkey place go for $500k and another for $900k 2 blocks from each other right by me about 3 or 4 years ago (obviously the latter was very nice new construction, but you get the point).
They own in a solid neighborhood, one that was “up and coming” 5 years ago, and rent in an average one (it’s in a higher risk flood zone which factors in a ton). Irish Channel vs. midcity, if you know the area at all.
They don’t have kids and see their rental as a place to sleep. It’s small, barely what I’d qualify as enough for two people. But it works for them so power to them I guess. Making out like bandits.
I get why you’re skeptical but it’s not like I’m lying here. Not sure why I would? The whole point of this anecdote is to show how crazy these interest rates were.
Leverage is much more expensive (from sub 3% mortgages, we already have 5%+ rates), which means buyers can afford less, plus significant withdrawal of “cash” buyers from the market who were really just borrowing against their (now much smaller) equity positions.
I wouldn’t want to be in a forced sale position anytime soon.
The problem is more that prices are very high and supply remains very low.
Mortgage payments set a ceiling on how high property prices can rise. However, people seem to be willing to spend more on mortgage payments than they probably should, so it’s likely that this ceiling hadn’t been reached yet.
The other factor is simple supply and demand. A large factor in 2008 was a large inventory of housing that came on the market. As far as I’m aware, there is no current corollary in the US now.
If you are living in SF, this is bad. If you are living in the middle of nowhere, this is good for you.