Mortgage Rate jump up, slowing down the buyer market | Hacker News Reader

Mortgage Rate jump up, slowing down the buyer market

thehill.com

22 pointsfairytalemtg40 comments

I hope this is good news for those who have been saving a down payment for their first home. I wanted to buy as early as 2018 but it seemed low interest rates meant much of the middle class could afford a huge loan, so everyone made over the top offers and bought all the stock.

I've been patiently putting money away hoping interest rates would go up so I could have more homes to choose from, then wait for rates to come down and refinance.

I am hoping for exactly the same. But sometimes I wonder if I am just being naive and forgot to account for some factors.

Until investors continue to buy up properties for cash, never know if the actual inflated value of property will come down. There definitely will be some reduction as loans become difficult to get.

Yes, high mortgage rates should temper demand somewhat, all else equal. But the effect may not be as large as you might expect given the increasing prevalence of all-cash buyers.

Unfortunately, high mortgage rates also work to reduce supply. A lot of homeowners who locked in 3-ish% mortgage rates in the last couple years don't want to move unless absolutely necessary, because that would mean refinancing at a higher rate.

Looking for a home is stressful, but keep saving and be patient. I wish you good luck.

> Unfortunately, high mortgage rates also work to reduce supply. A lot of homeowners who locked in 3-ish% mortgage rates in the last couple years don't want to move unless absolutely necessary, because that would mean refinancing at a higher rate.

That factoid gets parroted in every article about the housing market, but the fact is that for the vast majority of homeowners, when they sell their house, they are also simultaneously buying a house. So if more of them choose to sit on the sidelines, that reduces both the supply and the demand equally.

Interest rates might have an impact on investor-types, in a way that could move the market (for example if more investors postpone selling in favor of renting to keep their low rates). But investors tend to have shorter duration and/or ARM mortgages (because the 30 year is for the most part only available for primary homes), which means that the higher rates will catch up to them eventually. The CRE market is a good example of how that is playing out.

OP stated he was hoping for more supply, or at least leas demand relative to supply. I stated why that may not work out. I said nothing about supply declining more than demand.

Hasn't changed a thing in Portland, Ore. Two friends looking for houses still getting out bid by multiple 10k's. Feel bad for 'em hope it changes soon.

I think many overlook the degree to which the housing market has been distorted by banks, private equity, and companies like AirBnB.

With a housing crisis in America, any decent, democratic government would have implemented regulatory changes to block or penalize purchases as financial instruments rather than homes.

Why? Homeowners are the majority voting demographic. No sane elected official will do anything to screw their biggest voter group.

The government is far and away the largest player in residential housing. From zoning rules; through Freddie and Frannie; to extensive state regulations of foreclosures; to the mortgage interest deduction; and in hundreds of other ways governments at the federal, state, and local level have heavily shaped how Americans buy and sell houses.

If you are unhappy with how it’s working, the answer is not disinterested and hands-off government.

Wait what? This argument makes no sense : - housing conditions suck - government is a major factor in creating current housing situation - ergo government should be more involved...

What?

I would be careful with waiving a giant "government" paintbrush. There's many different governments at play here all with different goals (sometimes incompatible).

I’d say if there’s extensive involvement already, and you aren’t happy with the outcome, you should probably figure out what went wrong with those existing interventions before layering on top new rules that sound good but will likely also have unintended consequences (given that the old rules that sounded good didn’t all work as expected.)

You should probably start with an idea of what you are trying to accomplish. Do you want affordable housing or buying a house to continue to be a slam dunk, one way bet? Probably can’t have both because math.

Prices have went up by 75% around here so I'm going to end up financing the same amount as if I had bought 2-3 years ago when rates were still low. Seemed like it was crazy to buy at that point but it would have been perfect, looking back.

You only compete against other private homeowners at the ultra high-end of the market. Everywhere else, you're competing against investors. They are paying cash.

This really depends on the details of the market. Much of the housing stock in NYC are Co-ops that require the owner to use the apartment as their primary residence. (My building is 100% owner-occupied, though we do allow subletting for a couple years.) You can compare prices in these buildings to restrictionless condos and see how much effect investors have. It is noticeable, but not earth-shattering. Many people that live in co-ops probably could have bought a condo if it's what they wanted.

Yeah thats just not true. You are competing against both but not on every home.

I don't think it's that great of news. If you're waiting for something like a 10% or 20% drop in prices (remember that this varies and is market dependent) you're probably going to keep waiting.

The problem here is that when interest rates go up, those who locked in historically low interest rates are going to be less likely to sell their homes. Those who have to sell their homes aren't going to reduce the price by 20% just to sell, more like they'll sell at current market prices (which are still way up) or just sit on the house instead of taking a loss or too large of a discount.

On top of that, higher interest rates mean it's more expensive to build new homes. So you get less supply.

My mental model for home prices is that there are some general fluctuations and such but the overall market trend will continue to be neutral to positive and rates will grow as well. The "rates are high so prices must come down" mechanic is far too simplistic and unrealistic.

I don't think the OP was counting on prices to drop; rather, they were waiting for others to be priced out (hence higher supply for them). It's still debatable whether folks will sell in this kind of market, but at least for this buyer higher rates mean less competition on the buyer side.

The only scenario (I think) where this works is an all-cash purchase so you aren't paying the higher rates so it's not a concern. Waiting for others to be priced out seems like a weird thing to do because you're just making the purchase more expensive for yourself since prices stay the same or go up and rates go up.

As someone who bought in early 2022 just before interest rates spiked, I would in fact only sell at a significant premium at this point. The reason being that if I currently owe $X on my low fixed rate 30-year mortgage, the true mark-to-market value of that payment schedule at current interest rates is, I dunno, call it 0.6* $X. To my understanding, selling now means I’d have to pay off the entire mortgage completely with the proceeds. As far as I’m concerned, that essentially means throwing away 0.4*$X.

If you want to use asterisks literally on HN, you need to escape them.

As a potential home buyer right now, it's less about prices drop but more about homes not going over asking. When you hit this situation you have to cover the difference. In some cases this could be $30-50k which depending on your downpayment could greatly reduce your buying power. During the pandemic with low interest rates would yield anywhere from 10-20 over asking offers on a home. Now days homes are generally selling close to asking and occasionally you can even get a home under. Yes the supply is lower but people will always ned to sell and it's nice having the buyer pool be smaller and less competitive.

This is a correct, but incomplete take that I see a lot in response to the "market is going to crash, yay!" comments. It's incomplete because it assumes that every housing unit in the country is owned by a single family and, if sold, would have to be replaced by another one. These are owner occupied primary residences which are 70-80% of the market, depending on who you ask.

The remainder consists of second homes and investment properties which will get sold, if they don't make financial sense anymore, for example, when short or long term rental income drops which is already happening. Overall, it's possible for the prices to drop in the total market even if the primary residence owners swear that they will take their 3% mortgage to their grave.

Thats a good point but also it means you will see particular areas be more dramatically affected by this. For instance, I have noticed big price buts in some ski areas where I have though about buying a small second home or condo.

Governments won’t let a supermajority of voters’ most valuable asset fall in value very far or at all for very long.

The game is rigged.

I'm not sure much changes here. People are simply not selling their home right now, because they know that the pool of buyers that can afford their desired price is smaller than it could be. There is definitely some effect where buyers are scared off by things like "on the market for 9 months", so sellers are kind of chilling right now unless they absolutely have to move.

My advice is to not time the market too much. I bought late last year; objectively not the best time ever to get a mortgage (or to convert your savings in stock into cash!), but I also wasn't competing with anyone for what I think is an extremely desirable apartment. I paid $110k under the original listing price, but I think their original price was objectively insane and would have not sold at that price for a couple years.

Keep an eye on listings; if there's something you want that you can afford, I say go for it. Because like you say, it's likely that rates will go down. (Don't bet your house on it, though. Get a fixed rate mortgage and then when rates are 18% 5 years down the road, you don't lose your home.)

If price drops in your local market, then you can do pretty well by buying in a high interest rate environment and then refinancing when rates fall.

That's a bet that high interest rates aren't the new normal for very long.

How is this good news for buyers? People who own homes are reticent to sell in this environment.

Anecdote: I had my house built in 2016 for 340K with a 3.5% 30 year FHA loan with PMI. I refinanced when it was worth $650K in 2020 with a 15 year mortgage and 1.9% and dropped PMI. I am paying roughly $300 more per month.

Why would I sell my house knowing that I’m going to have to pay triple the interest rate? There are plenty of home owners who are thinking the same way.

Even going a step further,

https://www.chicagobusiness.com/residential-real-estate/peop...

My wife and I decided to move. Instead of selling our old house, we decided to rent our house and buy our second home because we were paying basically nothing in interest.

I think the Fed saved us all when they got those interest rates up in time. I think even now we're tempting the 2008 bubble demon. There is still a ton of local inflation, but I can't imagine what housing would look like if we kept interest rates below 2%.

https://www.cnbc.com/2023/04/06/a-big-short-investor-sees-di...

I wonder about this - if some areas are overvalued due to flooding, would that mean places that won't see flooding are undervalued? Could it be a wash on the macro level?

It is also slowing the seller market.

We bought a house at 3% all in... and we're unlikely to sell.

There are still motivated sellers out there, but the overall market velocity change is taking time (which should be expected, the benchmark rate must be held high for some time to bring about the desired asset deflation outcome).

New construction will sell at the price that moves the sticks. They're a business without emotion, but a P&L and shareholders.

Yep, we're really stuck currently because 7% interest is a non-starter. It might as well be just be "you can't buy money right now." So we're not so much saving for a down payment as much as "we're saving to just buy a house outright."

Doing the math and accounting for modest inflation it turns out that it's substantially cheaper over our lifetime to rent until we can afford to buy.

Yep. If we were to refinance our home right now, we'd be paying an extra 1K per month just for the pleasure of it.

Preach. We did that same math to see what it would look like if we bought our friends house they snagged when interest rates were low and it was a little over $1k more a month.

We're not far from NYC. We're able to get a pied-à-terre in NYC for $1-2k, and pay both the mortgage and a small rental... at the same price as our old rental apartment (1br, now going for $5200).

In fact, we'd probably be able to put the house on AirBnB for extra income, as our area lists AirBnBs for $300+ per night.

There's really little reason for us to outright sell.

People won’t intentionally sell their house for less than they paid. They also won’t sell to incur mortgage debt. The sellers are likely distressed sales or other forced sales. Foreclosures are cheap for reasons.

Healthcare and Housing will be the end of the American civilization XD

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