Hacker News Reader

Comment by tricksforfree | Hacker News Reader

Good.

Maybe the people who didn't bail on their communities during covid can finally afford a home.

Indeed, this is the goal of rising rates: asset repricing downward. Some people will stay put because they locked in a low rate, but motivated sellers will set the comparables going forward. As long as someone sells, the market will perform price discovery.

probably not, because the loan still costs the same

Lower home price means 20% down is feasible.

Higher rates mean that the interest on that 20% cash that you would to give up is higher, so you are giving up the opportunity cost of having a a cash flow.

People need to live somewhere, you’re applying an efficient financial model mindset to someone who needs a roof and four walls. First time and new home buyers don’t care about the spread, they want a home.

Irrelevant. I'm just saying that interest rates determine the cost of borrowing money and the interest you can earn by having money, it does not really matter what you are borrowing money to buy.

Why are we supposed to care about people who actively make irrational decisions?

You're still competing against the other people who are in your similar economic circumstances. The reasons that you got outbid today aren't going to get dramatically better when you and millions of other people now have a 20% downpayment instead of a 16% downpayment.

(This is the general you, not the specific you, of course.)

Higher interest rates will discourage the investor class from snatching up homes they don't intend to live in though. Not all of them of course, but the demand for living in homes is far less elastic than that of those using them to make money

Agreed; that's got about epsilon-squared to do with achieving the 20% down payment threshold, though.

Only if you kept the down payment in cash. All other asset prices are crashing as well, so if your savings are in stocks, bonds, crypto, etc your down payment has probably shrunk by more than home prices.

The general advice is that if you're actively shopping for a home most or all of your down payment should be in cash or very low-risk securities.

and we'd likely have a healthy housing market if more people were rational like this.

But no, let's take a loan out against our RSU's so we can get a $1M bi-level because the schools in this district are amazing /s. Now a house in North Carolina is worth as much as one in New Jersey.

Given the choice, I would much rather live in North Carolina than New Jersey so that makes sense. Everyone I know who lived in Jersey at any point lived there because they had to, or because they were already established. Not because all things being equal they would choose to be there.

Sure, but "actively shopping for a home" is different from "waiting for prices to fall so you can afford one". If you'd kept your down payment in cash since the last housing bottom a decade ago, you'd have missed out on ~3x appreciation vs. putting it in an index fund.

From another comment:

> $1M home at 3% interest(30year) = ~$4200 monthly payment. $800k home at 6% interest = $4800 monthly payment.

Over a 30 year term, your interest rate has much more impact on affordability than the purchase price does. 20% down is a drop in the bucket when your rate necessitates paying 1.5-2x the purchase price in interest because it's spread out over 30 years, especially at higher price points and at the edges of people's budgets.

You can refinance in a few years, however you cannot change what the house price was when purchased.

If the house prices is lower, every extra payment to the principal will drastically decrease the interest over the entire term, much more-so than the initial larger loan/principal.

if you have 20% now, you had 16% before and 3% mortgage rates. Now you have 20% and 5% mortgage rates or an ARM. ARM might work to lower monthly if you think Fed will chicken out and you are happy to pay refi cost.

Didn't they "bail on their communities" to improve their situation? Won't these people who stayed put generally be in worse shape to buy than those who left or those who left other areas?

And I'm sorry but people left communities which abandoned them, not the other way around.

curse those people who dared to improve their own lives!

They knew what they were getting into. If not, that is just willful ignorance.

Most probably did and most are happy. I don't understand the downside

Buying a home is a vastly overrated experience. Especially now with interests rates up, even with lower prices it's less sensible to buy now than a year ago. You shouldn't tie up your net worth in a huge illiquid asset.

I don't get that argument. Refinancing exists. If you can swing it, buying at peak interest rates is a great idea. All of those Boomers who whine about 18% rates from 1981—rates which by the way persisted for only 2 months—got the deal of a lifetime.

I agree with the general thrust of your comment but why would buying at an 18% interest rate be "the deal of a lifetime" all else being equal?

You are very likely to get a lower rate after a year or two. Anyone who bought at that peak 1981 rate had refinanced to cut their payment by half within only 5 years. Even if they had refinanced after just 1 year, their payments were already 20% lower.

This analysis assumes that rates would decline from exceptional highs, which is implied by the phrase "exceptionally high".

A Boomer who bought a house with 10% down and a $56k loan on fixed 30-year terms at 18% in October 1981 was initially paying $844/mo but in 1982 they could have refinanced down to just $700/mo. By 1986 their home was worth a nominal $80k and their payment was potentially down to just $450/mo.

In addition to what jeffbee said, because when the rates go down, not only can you refinance, but also the value of the house goes up. (Because the demand side of the supply/demand curve is set by monthly payments, not by total value, and when interest rates go down, the same monthly payments can fund a higher face value loan.) So you get the lower payments and capital appreciation.

By the way, the same "increase of face value" is true of buying long bonds at peak interest rates.

Of course, the trick is knowing when the peak is. But if the Fed's actions have their intended effect, we may be somewhat close currently. (Note well: I am not an investment advisor! Follow at your own risk.)

Obviously homebuying is a subjective experience. Buying a home was a positive lifechanging experience for me.

I feel like it was a prerequisite living the life I wanted, and the absence was the source of a lot of depression and anxiety.

My main regret is not buying earlier, money be dammed. I would happily trade that money for more happy years.

I'd argue this is pure cultural bias. It's been beaten into our heads the home ownership is part of the American Dream. Owning a home felt to me like a massive burden. The house owned me more than I owned it.

"Ownership beaten into our heads" is your own baggage.

Some people are handy and enjoy taking care of their home.

Some people don't like hearing their neighbors footsteps above them all the time.

Some people play Drums and don't want to pay/share a small 10x10 room to practice in.

That's an expensive hobby. Also, house vs apartment is orthogonal to own vs rent. I owned an apartment.

Everything psychological has a cultural bias, that doesn't make it less real.

With who I am, from my culture and upbringing, it was near impossible to be happy without a home. I tried for 15 years without success. I grew up reading Walden and love building and improving things. I was never going to be happy in a rental without substantially changing my personality, and couldn't do so when I tried

I grew up watching Star Trek :)

well, can you?

Reply on news.ycombinator.com