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Comment by closeparen | Hacker News Reader

Most American households are owners and housing is the vast majority of middle class wealth. A 30% haircut there is pretty doom and gloom.

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If you're not selling, it's unimportant. Unless you're a "real estate" investor, you're not gonna feel it at all.

Nearly everyone either bought a new home or refinanced within the last 12-18 months due to historically low rates. This also means that almost all mortgages are pretty much capped out in terms of loan to value.

If houses lose 30% of their value, a substantial amount of people would be underwater and would likely be better off walking away. Could be very bad.

> would likely be better off walking away

Most people will not go underwater (not that many people, proportionally speaking, bought in the last 2 years), but either way, there's zero chance anyone's walking away if it's their primary residence. What are they going to do, live in a van down by the river?

> What are they going to do, live in a van down by the river?

Rent?

Rentals in the near-future will be of higher cost until re-adjusted or if the demand goes much lower. Also, renting with a bankruptcy on the record could be challenging.

Not trying to patronize, but going underwater does not mean bankruptcy. The only way people are going bankrupt is if they can't afford their mortgage (e.g. they lose their jobs). The job market is extremely hot right now, so it's unlikely we'll have bankruptcies. Worst case scenario, homeowners contribute more to their loan than to house equity every month. Yeah, that kind of sucks, but still way better than renting or being homeless.

Pretty sure after a pandemic and (potential) crash nobody is going to care if you have a bankruptcy in the last several years.

This is what I remembered from Econ 101--inflation is good for debtors and bad for lenders because the real value of what you have to repay on a loan decreases, vice versa for deflation. I'm not sure why everyone is following the media into a fear of inflation when deflation would be far worse for anyone with house/car/card debt.

I wasn't trying to say that anything is coming or not, just that homes losing 30% of their value would be bad for people even if you don't intend to sell immediately.

All the folks that are pretty much capped out on their debt with their new mortgages should be a great position going forward because they're locked in with their 2-3% mortgages and interest rates (and/or market returns) should surpass that.

Because wages don’t usually go up in lockstep with inflation so you have reduced spending power in the short term which a long term debt doesn’t help out with.

When the choice is pay for gas to get to work or feed the kids nobody cares they are benefiting on their 30 year mortgage because of inflation.

> would be underwater and would likely be better off walking away.

What if you just want to... you know... live in a house? In that case you just live in it, service the mortgage, and wait.

Defaulting on a mortgage isn't that easy, and could have negative consequences beyond just getting your house foreclosed on. You could end up having no house, and having to pay the remainder of the difference.

You could go bankrupt, but then you'd have a hard time finding a rental place for the same amount that'll accept people with very low credits scores.

>if houses lose 30% of their value, a substantial amount of people would be underwater and would likely be better off walking away. Could be very bad.

That would only be true for people who did cash out refis, not for someone who just wanted a lower interest rate. All they did was re-amortize their current existing loan (on a house that they already had equity in) and get a lower rate.

Source on the nearly everyone part of this? Seems hard to believe.

Nearly everyone should have been qualified- many folks couldn't take advantage or had a low enough balance that it didn't make sense.

I don't have the raw numbers, they're almost all paywalled off, but you can see the recent volume of refi has been a multiple of each quarter from 2013 through 2019.

https://www.attomdata.com/news/market-trends/mortgage-origin...

The total outstanding residential mortgages today are roughly $12T. Since 2020 onward, over $5T in volume has been refinanced. That's a large portion of the population with a mortgage that is very early in its lifespan.

https://www.statista.com/statistics/205946/us-refinance-mort...

Yes but it also means most people have locked in low interest rates which they wouldn’t want to give up even if prices decline.

> Nearly everyone either bought a new home or refinanced within the last 12-18 months due to historically low rates. This also means that almost all mortgages are pretty much capped out in terms of loan to value.

How do you figure? Refinancing does not, in most cases, mean taking additional equity out, thus LTV should not change for the majority of refis.

Admittedly, the raw numbers are difficult to find in an article I can link. However, there has been a significantly higher volume of cash out refis than we've seen in the last 15ish years.

https://www.housingwire.com/articles/cash-out-refis-reach-1-...

Cash out refis accounted for ~25% of all refinances in 2021 (roughly similar numbers in 2020). Remember at the start of the pandemic many people tapped their equity because of uncertainty and extremely low rates.

Well, that or if you just recently bought at the top and are now completely underwater

I'm more thinking of factoids like "the top X% have Y% of the wealth." People find these to be profoundly illustrative about the state of the world, justice, and policy, and aren't normally placated by the information that this is paper money or that the inequality in actual consumption is much lower. If for example housing collapses relative to stocks, the world will seem a much darker place, at least to the extent that you think these stats indicate the kind of place the world is.

+100% in two years is "normal", but -30% is doom and gloom.

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