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Comment by npalli | Hacker News Reader

The 30 year mortgage rate went from under 3% to over 6% so the monthly payment on a $500K house went from $2100 to $3000. Don't believe anyone got that big of a raise. Entirely predictable.

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I've never understood why offering adjustable mortgages to people at the edges in the credit calculations isn't guaranteed to create a housing crash when rates go up.

A significant number of people will absolutely have to sell as they can't afford the new monthly payment, and the value has just dropped for anyone who can model probable futures, and a significantly smaller number of people will buy given the raise in mortgage costs.

In the US at least, 90% of mortgages are fixed for the entire 30 years so that isn't a problem [0].

[0]: https://www.debt.org/real-estate/mortgages/30-year-fixed/#:~....

Regardless of fixed or ARM, the market takes awhile to really shift. Most adjustable mortgages take 5-7 years to reset rates, and 30 year mortgages if you got one at a low rate is low risk (from a monthly payment perspective), assuming no one loses their job.

That means existing owners can often hold on for awhile.

It will dry up new buyers and the already low liquidity markers lock up though as new buyers at the existing prices disappear.

And the fed expects the funds rate to go up to 3.4% by year end which assuming its not priced into the mortgage rate would put rates about 7.5% with a 3500 dollar payment. One thing also to note is how much prices would have to fall to get back to the 2100. For 6% and 7.5% a 500,000 dollar house would have to go to 350000 and 300000 respectively. This would basically flip new home buyers upside down.

The perils of buying at the end of a macro cycle. Real estate was overvalued due to zero interest rate policy, and their values must now fall (buyers buy a payment governed by wages/income and mortgage interest rates).

New home buyers will be fine as long as they intend to live in their home. If you’re in the market, wait 3-6 months (or longer, based on Fed meetings raising rates) if you can as values decline. Anyone selling right now is still trying to get out at the top, which has already passed.

It typically takes several years for these type of shifts to work their way out market wise - existing sellers want to hold on hoping prices will recover, and it takes awhile for them to to HAVE to adjust prices.

Sure, the more motivated you are, the more you’re likely to cut your price. If you’re selling, you’ll have to cut your price eventually. If you can afford to or your circumstances permit, you’ll hold out as long as you can servicing the debt. Maybe the incoming recession is deeper or lasts longer than expected, making servicing that debt challenging forcing a sale faster.

"the macro cycle" won't end. In fact, when the interest rate is zero and we are not in a liquidity trap, one would expect there to be no cycles whatsoever.

Especially in California where homes are already expensive, this could be more like 6k to 9k on a $1.5M home

Typical SFHs in the Bay Area got up to $2.5-3M in many areas. Nuts.

I've never seen the numbers explained so succinctly. It's a terrifying difference.

Banks will start offering a 40 year mortgage. Just you wait.

yes, plus there's already talk about "Australian" mortgages (also known as an "all-in-one") plus you'll see the return of ARMs, and I'm already advising my sellers to consider carrying contracts themselves where possible. Point being, the market adjusts to conditions.

What does carrying a contract entail for a seller?

Let’s say you have reasons to sell your property, but you don’t need all the money right this minute. Maybe interest rates are at like 6.5%, but you’d be willing to carry the contract for 5%. Everybody wins - the buyer gets a better deal than they would get from a traditional lender, they get the house they want, the seller gets the house sold and gets paid out with a rate of return that makes it worthwhile for them. When rates are low, it doesn’t make any sense apart from land contracts (which is a separate discussion) but as rates go up it can be a good solution for everyone.

Maybe you won’t see this in urban markets, but in rural markets it is not uncommon - I did several in the last year and when I talk to other agents in similar markets they report the same.

My point is - lending trends tend to change in order to keep business flowing.

I've also seen more interest only loans lately.

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