Rates skyrocketing can be great if you are going to be buying - because prices will usually drop to keep total monthly payments about the same.
And even if you have to buy at 18% interest like in the 80s, you can refinance if rates drop.
And even if you have to buy at 18% interest like in the 80s, you can refinance if rates drop.
I'm expecting house prices in my country to drop at least 30% in the next couple of years and I'm only expecting interest rates to get to around 10%, 18% would destroy the housing market.
If you can get a job as a liquidator and have lots of cash as it’ll be hard to borrow at all.
The last black swan like that was probably before my time (1980s) but maybe the ERM debacle in the UK was close.
Eventually they’ll have to or people will be spending 100+% of their income on basic food and shelter with no way to afford getting to work.
If home prices dropped 50%, very very few homeowners with rates in the ~5% range would be willing to sell even if they could afford to do so without bankruptcy.
Housing has been so high for 3 years
All of people’s wealth was tied up in housing before then too - if they sell they’ll just get less for it now
Hell, if you're far enough underwater, youd be smart to declare bankruptcy rather than pay an $800,000 mortgage on a $500,000 home.
Some people were perfectly able to continue paying their mortgage, but due to life circumstances and / or some sort of psychological refusal to continue to pay for a house hundreds of thousands of dollars worth less than the loan, they simply defaulted.
It was called jingle mail because they just sent the keys back to the bank and walked away (sometimes taking the appliances and copper on their way out the door).
In most of the remaining parts of the world (speaking for Germany myself, for example) you can't just drop a houses' keys into the banks' mailbox and be done with the entire mortgage. Instead, you are bound to a mortgage that's suddenly not backed by sufficient securities anymore and it's up to the bank to decide whether they just ignore this situation, attempt to somehow mitigate the additional risk by raising rates or requesting additional cash from you, or whether they try to liquidate the security in order to limit their losses and then come after you to cover the outstanding balance.
So if you want to do the bankruptcy play in case the bank requests your last shirt, you actually need to go on full personal default, with all the negative side effects that has on your credit rating everywhere else and all the subsequent obligations like the necessity to show good financial behavior for X years to have your debts be deleted eventually.
For example, only 2 provinces in Canada are "non-recourse". Default on a mortgage, they lender takes the home and absorbs any loss that remains. Most of the US is like this.
"Recourse" provinces mean the lender takes your home, recovers what they can, then comes after your other assets to make up the difference. Not sure the exact laws but usually primary homes and retirement funds are protected, but they can take other property and auction it off.
https://www.forbes.com/advisor/loans/recourse-loans-vs-non-r...
I wonder how much that is already contributing to the pullback in listings that is driving price increases; I suspect investment firms turn over property a lot less (at least, as individual sales) than owner-occupied.
> Mortgage interest rates will rise. We can't be sure exactly when rates will begin to climb or by how much, but we know what's coming.
11 years later it finally happened
But you can’t get that backstopped loan until the house exists.
Likely you could pull out and lose a deposit (and a good lawyer might even get that back because of delay) but you’re still without a house.
A friend of a friend just sold his condo in a Bay Area at a loss. Prices have dropped from their highs.
Cause the transaction costs alone are about 10% on a home sale, so it's not something you want to treat like switching apartments every year when they jack up the rent 10%, even if the general rental market doesn't call for such an increase (they know most people won't want to deal with moving, deposits, etc).
Cause the transaction costs alone are about 10% on a home sale, so it's not something you want to treat like switching apartments every year when they jack up the rent 10%.
Condos took a big hit in SF during Covid. Starting to recover, but now with increasing interest rates, it may be a while.
I have two coworkers looking to buy. They both keep “waiting for the crash”. But I’ve tried to explain to them, they’re getting beat out on every place they look at with over-asking cash offers. If there “is a crash” they will be at the same place they are now.
They need new construction to improve availability, or they need a scenario with there is mass unemployment that doesn’t effect their jobs.
IDK anything. But I’m not sure I see how they get into a house.
You can argue that people just will stay put, but that assumes they have the ability to service the debt on their home in the expensive area. It doesn't take many forced sales in an illiquid market to drive down prices. It can also drive a panic rush for the exit as folks think they're missing the last chance to cash out of their expensive home.
I saw a couple of open houses today in the south SF Bay. Ghost towns. I can't say if that's representative of the overall market, but I think the pipeline is already draining.
> I saw a couple of open houses today in the south SF Bay. Ghost towns. I can't say if that's representative of the overall market, but I think the pipeline is already draining.
The houses sit empty because the owner would rather maintain a (fictious at this point) valuation than realise the loss. That panic sell dynamic you mentioned doesn't seem to happen in housing, and foreclosure sales etc. can always be dismissed as unrepresentative.
Who can afford to let a > $1 million USD asset sit idle? There is an opportunity cost to that. You also have to service any outstanding debt on the property and pay the property taxes. There are also life changes(i.e. retirement, illness, children, etc) which force relocations. The owner could try renting the unit, but that involves risk and still has issues with opportunity cost. What if the home sits idle and the owner relies on the income to afford a rental in another market?
People that own >$1 million USD assets. Some of these folks have multi-million dollar properties that they only actually use for a week or two per year.
They have no connection to tech and work in a niche industry.
This happens for a while, and volume collapses except distressed sales. Then there’s a gradual recalibration where sellers adjust to a new normal and properties come back on the market.
Take a look at post-2008 crash behavior and you’ll see this dynamic: volume collapses, then a gradual normalization of volume, all while still far below the previous peak.
One example scenario: if you own a home but want to upgrade, the new home you want got a lot cheaper too. So you might take a loss on your current place to get into the new one.
California’s prop 13 was found to have this effect. So too will the prior low mortgage interest rates.
Prop 13 has a big effect but more so in downsizing (eg empty nest / retirement) than in upsizing.