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Comment by Escapado | Hacker News Reader

I had a brief interaction with a real estate agent a few months back and he told me they really have trouble selling houses now at those interest rates. The run on housing apparently has dialed back significantly. He also mentioned that he thinks in around 5 and 10 years time the market might be flooded with houses people bought at low interest rates because they will not be able to pay their mortgage at these new interest rates and those are typical timeframes for interest rate guarantees. Maybe someone with more insight can share their perspective.

I also wonder if people who are in a position to sell our build houses will try (and maybe even succeed?) to sit this out or whether we will see a downward trend in prices again.

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10 years is a long time. This prediction requires two things to happen: interest rates never decline in that period and wages of the owners stay the same. Given the inverse relationship between the two, I don't see that happening. Even modest 3% wage growth over 10 years is an increase of 34%, 4% pushes that to 50%.

Since the mortgage is fixed, these wage gains don't even need to be "real" (positive when inflation adjusted).

> I also wonder if people who are in a position to sell our build houses will try (and maybe even succeed?) to sit this out or whether we will see a downward trend in prices again.

You can't time the market. It's so difficult to predict what is going to happen in the future with any degree of certainty. Also, where are you going to live in the mean time?

Lots of people were burned in 2014-now by assuming the housing market was going to "collapse any minute now" then watching the exact opposite happen. It's as if they thought 2008 was some kind of regular occurrence and not a black swan event.

>Lots of people were burned in 2014-now by assuming the housing market was going to "collapse any minute now" then watching the exact opposite happen. It's as if they thought 2008 was some kind of regular occurrence and not a black swan event.

To be fair to those people, the extra low interest rates of 2014-2022 were the historical black swan event which everyone expected to last a couple of years at most and not a decade, but the banks left the money printer running for too long and now we're facing the inflation fallout.

Rates were never in history so low as post 2008. Why would any sane person expect them to last so long?

How the f can you have such a big mortgage, with a variable interest rate, and sleep at night ?

I'm french, and everyone I know has a fixed interest rate. dont know if it is mandatory, but God, I am so glad that my interest rate will never spike.

You pay more money for a fixed interest rate.

(hopefully)

In 5 years you should have large portion of principal paid off so this would not matter.

Average 30 year mortgage is paid off in 11 years.

Really interesting. Is it because people sell the property and get a new mortgage for a new place or they outright pay it off after 11 years?

It is the former, very few people are paying off their entire mortgage in 11 years.

In recent decades Swiss and Nordic societies have dealt with rising home values with 50 year mortgages and interest only products that are barely recognizable to US home buyers.

Many Swiss have fairly dangerous interest rate exposure (to the SNB) based on the assumption that it will continue selling francs to keep exchange rates more competitive, etc.

That will be true … until it isn’t…

The average duration of a 30 year mortgage being 11 years is due to refinancing or moving, it’s not due to large amounts of borrowers paying their debts early.

In a thirty years fixed mortgage, each payment includes a portion to paying down the principal and paying interest on the remaining principal.

In the beginning of the mortgage, the principal is higher, thus the interest portion is higher. In the first five years of a thirty year mortgage, a very small percentage goes towards the principal.

Assuming a thirty year fixed rate mortgage and a 7.5% interest rate, less than 15% of the mortgage payments in the first five years go to paying down the principal [1].

[1] https://www.bankrate.com/mortgages/amortization-calculator/

A good number of French people somehow still remember (or talk with awe or anger about) the crazy early 80s, with the rampant inflation, the variable interest rates frenzy, combined with successive devaluations of the Franc Français and the moment the French government decided to follow the example of the Deutschmark and aim for what became the Euro...

Yeah when I asked (in France) about variable rates to a credit guy recently he looked at me like I was an alien. They probably still exist, but the loan-happy people won't even try to sell them, to me at least.

Cheap 30y fixed rate home loans are an American thing. The federal government subsidizes them.

You're literally responding to a person in France with a fixed rate home loan (not mortgage, the housing isn't direct collateral for the loan). 30y is a bit on the long side, "traditional" is 20-25 years though.

> The federal government subsidizes them.

Curious how does federal govt subsidize them?

> Curious how does federal govt subsidize them?

Through the VA Loan, FHA Federal Home Loan, and USDA Rural Loan programs.

These sounds like specialty programs ?

> Cheap 30y fixed rate home loans are an American thing. The federal government subsidizes them.

This statement sounded like 3oy fixed rate is possible only because of fed govt. meaning if its wasn't for fed govt subsidies 30yr fixed rate wouldn't have been possible.

> These sounds like specialty programs ?

FHA alone accounts for something like 1/5-1/4 of all home mortgages, varying slightly over time; and, its entire purpose was to shift the whole market (which it did).

In most cases it isn't a literal subsidy. Fannie Mae acts as a government-sponsored market maker to purchase home mortgages from lenders, then package and sell them to investors. By providing an "artificial" source of liquidity and taking on significant balance sheet risk they keep mortgage interest rates much lower than they would be in a free market system.

https://www.fanniemae.com/about-us

got it. Doesn't make sense to limit supply and also subsidize a product a the same time. Wouldn't that automatically increase prices?

How does high prices help the people govt is trying to help. All this makes no sense to me. why are they doing this.

Mortgages are subsidized by the federal government. Housing supply is limited by state and local governments. Those are separate entities which often work in conflict with each other.

Doesn't matter who is limiting the supply though? Subsidizing something with artifically limited supply will automatically raise the prices and hurt ppl who they are intending to help. What am i missing here?

If things continue, in 5-10 years, dollars will be worth 50 cents, and it should be MUCH easier to pay your mortgage.

And, I'll eat my hat if we don't get back to ZIRP sometime in the next 10 years.

Atleast for the past few decades, salaries have increased less than what's needed to compensate for the change of value of the currency. Meaning the amount you make each year will on average be worth less.

The loan amount, however, will stay contant.

Your pay goes up. It just goes up 4% per year, while inflation goes up 10%. This does mean your loan becomes 4% "less" per year. It's just Big Macs go up 6%, making your pay worth less Big Macs. But your pay still becomes worth more loan repayments. The big increase only applies to new loans.

I would also like to point out that at 4% per year pay increases, houses become worth that amount less per year, for the same dollar amount. That means they "drop" 20% in price over 5 years.

That's not going to happen, salaries are depressed and are not keeping up with inflation by a large margin.

The balance on an existing loan doesn’t increase with inflation, though.

Yes, but the interest payments on mortgages with variable rates had doubled. Now some people basically are paying interest only without paying off their principal amount.

<2% of US homes are on variable rate mortgages.

Most folks aren't on variable rates.

If you're on a fixed 15-year or 30-year then inflation is generally working in your favor.

Salaries not going up is not directly related to mortgages, and while I can't speak to all jobs, has been pretty good in the STEM field.

Everyone freaked out about rising wages because they saw fast-food worker "we're hiring" signs offering $17/hr... meanwhile the $20/hr worker nearby saw a 1.5% COL raise in a 10+% inflation environment (and higher inflation on the cost of things that actually matter).

Interest rate guarantees last anywhere from 1 to 25 years. That means that in any given year, it is a pretty small chunk of the housing market which will see a change in rates.

Overall, that has a significant damping effect on the effects of changing interest rates.

Maybe in your country. In mine (Canada) even fixed rate mortgages are rarely locked in beyond 5 years, so every mortgage holder will be getting a notable bump in costs in the next few years if rates don't moderate again. In many cases, their servicing rates had 40ish% increases so it's not immaterial.

Homeowners who do have low interest loans will probably also devote much of their disposable income to paying down the principal in anticipation that rates will rise later. That means less spending on home improvements, consumer products, vehicles, travel, etc which will act as a further drag on economic growth.

Isn't this even worse for the banks? Like they're stuck with a whole bunch of mortgages on properties that can't be sold and where the owners are on the brink of defaulting on their loans? Feels like a house of cards that would topple over very easily.

Are adjustable-rate mortgages common in Germany?

They are normal basically everywhere but USA I think.

I have never seen one in France. Not for mortgage.

They were normal for a long time in the US, took a backseat from 2009-2014 or so and are back again.

I'm really shocked whenever I hear someone has an ARM again. 2008 wasn't that long ago!

2000 wasn't that long ago either, but I still see people using 2 digit years.

In Germany it is common to have a fixed rate for 10 years or so. Sometimes you get only 5 years fixed, sometimes 15. After that, you either accept the new rate on the existing contract, or refinance somewhere else (if cheaper with the new rate and fees).

There are mortgages with yearly adjustments, but those are rare afaik.

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