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Comment by zxexz | Hacker News Reader

You sound very confident. Not that I disagree, necessarily, but do you care to elaborate?

The forces that drove prices are over. Low interest rates, and low productivity due to COVID-19. As interest rates rise people will no be able to afford their mortgages. Prices will fall in response.

> As interest rates rise people will no be able to afford their mortgages

I really wonder how many people in the last 10 years actually felt like buying a variable rate mortgage was a good idea? People on fixed rate mortgages are staying put, and watching inflation deflate the value of their debt.

It amazes me that in the US you can fix for the life of your mortgage. Here in NZ 5 years is close to the max.

It’s an insanely great deal. In California you pretty much lock your property taxes as well with Prop 13.

Not to mention you can write off mortgage interest up to $750,000 mortgage debt come tax season. Saved me 20k+ in income tax.

you can fix for full mortgage in denmark, europe too. I'm not sure which other countries do this.

Almost nowhere. Ireland and the UK are max five or ten year fix, unfortunately.

> I really wonder how many people in the last 10 years actually felt like buying a variable rate mortgage was a good idea?

Probably not very many. But I wonder how many people don't realize the psychological issues of being put into a "golden cage" for 30 years.

Times will certainly be interesting indeed over the next 5-10 years.

In my HCOL area we are already seeing prices nosedive after they sit on the market for a few months.

The discounts are around 15% off peak, and this is just the start.

Which area is that?

Northern VA

We generally see closing in a week in our neighborhood of 1M to 2.2M homes with multiple competing offers, or sold before actually for sale.

My take is that this is driven by listings coming out at peak prices, but with some softness in the market and increasing rates, tepid demand.

And this will result in prices rising or remaining flat in MCOL areas.

Less than 10% of mortgages are variable rate. And why would anybody sell their house with a 2% mortgage? They’d need to be paid a significant premium to justify this.

Well, in my instance we’re hoping to have another child and we only have two usable bedrooms.

We could get by if need be, but it’s not like many people get a new house for the hell of it. Usually it’s because of new life circumstances.

Anyone who is capable of getting a second mortgage will consider holding it and renting it out if they can. The yield is very likely to be higher than the payments these days.

But now that the second mortgage is so much more expensive, fewer people will be able to do it right? More specifically, previously you could borrow against the increasing value of your home, at a low interest rate, to fund the next purchase. This is what everyone on the investment side was doing. With neither of those factors true any longer, it seems this scenario will be less common.

At a higher level, I think this is what the transfer of wealth looked like for the past decade.

People might be scared to let go of a house they already bought.

- They might consider going on paying in the hope that rates drop

- They might not be able to buy another house

- They might find rents will shoot up with mortgage, so somehow manage to pay mortgage.

Also, many houses are bought by investors and companies. They might be able to show higher mortgage as additional expense when filing Taxes. ( Not sure, but that's how I think they do it - someone can explain better )

If a large number of people are unable to afford their mortgage. Then we have a real crisis coming.

COVID is not over. It’s just getting started.

What do you mean by that?

Boomers are still retiring, trading in larger family homes for smaller ones in places they want to live, and paying cash.

Not meaningfully. Prices are up 60% in 2 years. No chance there is that level of correction when 99% of mortgages have rates cheaper than the current market rate.

Most people finance homes. Prices are overwhelmingly a function of affordability based on lending criteria. See financial engineering, thus see the Fed and real estate financing/banking legislation.

Unless, the very thin chance 1. Owners don't need or want to sell 2. No inventory is added through building 3. People somehow pay cash and support the prices ...or some combinations.

Fundamental economics really thereafter.

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