But in the long run, it is based on your alternatives. If prices are falling, that means lots of people are able to get mortgages more cheaply. More people getting mortgages means less people renting... which means less demand, and lower rental prices.
If a landlord is locked into a 30 year mortgage at one rate, and feels that the "have" to rent a certain price, that doesn't mean that this landlord will be able to find someone willing to pay that price.
It is for this reason that what you can afford is key. So land prices respond to the amount of disposable income that the potential buyers have. You are right that the affordability on the mortgage side includes interest rates, and it is possible for price changes to purely be making up the difference there.
But it could also be a broader phenomenon. If rental prices are falling, it is an indication that prospective buyers and tenants have less ability to afford that land, or that the location provides less value. Either way, a bad sign. But since land is so essential, it responds in such a way that no matter how prosperous a society becomes, it will always adjust to make itself about as difficult to obtain as always. The number of labor hours needed to buy a computer has fallen dramatically. But land values just kind of keep pace with the progress (or regression) of civilization.
People who have ownership over the natural world thus get to claim a growing share of the progress of civilization, purely by owning. Even if they only perform idle speculation.
Silly question but the fact that their mortgage expenses are fixed works to their benefit unless they bought at the peak, right?
Talking specifically about the big US city I live in - most landlords who already owned property since forever still jacked their prices up many hundreds of dollars in the past couple years because the market would bear it, not necessarily because they needed it to cover costs.
I'd imagine that the renters paying the largest rent (a few thousand, let's say) would be the likeliest defectors to buying a house. So buyers in the the top end of the market collapse, and those landlords begrudgingly start lowering prices - they can still make a profit. Maybe the low end stays the same.
I have zero understanding of the economics involved here, just pontificating.
The article is about the US but if it's interesting, there are quite a few countries around the world where variable rate mortgages (for example following Euribor) are the default, so in this environment their payments would've actually gone up (with higher interest rates), at the same time as the property value would go down.
That seems so reckless. Why would anyone risk the largest part of their budget spiraling out of control at the whim of the market?
From another perspective, 25 year fixed mortgages seem like a subsidy to homebuyers that protects them from the market. Who ends up paying the losses on a low rate 25 year fixed mortgage when central bank rates go up?
Certainly a 30 year fixed mortgage is an amazing deal for a homeowner. If the rates go up, you are protected. If they go down, you can refinance into the lower rates, and likely at a better LTV ratio (as you've paid more equity into your home). At this point, with my interest rate, I am better off putting excess cash into a bank account or Treasury bonds than paying my loan faster.
Edit: Also if you choose a variable rate mortgage, your monthly payment doesn't automatically change (unless the payment is insufficient to service interest) as the rate changes, instead you end up paying off less of the principal which makes refinancing even more painful.
Can you explain how this is a subsidy when it's a private lender offering me the mortgage? Why would they offer it to me at that rate if it was a bad financial move?
Apartment rents fall as new supply hits market https://news.ycombinator.com/item?id=34976493