Homebuyers must ‘learn to live’ with near-7% mortgage rates says RE/MAX chairman
cnn.com
cnn.com
The amount I can pay each month hasn’t changed drastically. If interest payments to my credit union go up, then the principal payments I can make to a seller have go down. The price I can pay is less than it was a couple of years ago. That means your commissions will be dropping, too, Mr. Liniger. You’ll just have to live with it.
1.8 million people over the age of 55 die every year in the US, and there are about 650k divorces every year. These are potential price discovery opportunities in the real estate market. (Excuse the morbidity)
This is largely a zero-sum game: if the bank is taking more money out of the transaction, sellers (and their agents who work for a percentage of the selling price) will be taking less. It’s not like buyers can magically afford to pay the same principal as before plus new higher interest rates.
There is very little supply at the moment, the population is still growing and the people with money are still buying houses they can afford.
FWIW under Biden, the wealth gap increased the most, he added the most debt, the house prices have the biggest hike.
For all things Democrats preach, it’s the exact opposite. Most people are worse off.
Having homes as a speculative investment is a great way to have an entire generation having low home ownership.
And I agree, both sides are equally worse.
With colleges, homes, healthcare, daycares, food becoming so expensive, the effects will be huge but we’ll feel it decades later
I mean what do you want to do with companies that work by owning (or ...) 200 homes and renting them out? There's a LOT of these, responsible for a big part of the rental market.
Economic systems are systems of dividing up stuff. Capitalism and communism, and everything in between change who gets which housing. They cannot solve housing shortages.
They (obviously) do not change the quantity of housing without the government at least allowing large housing developments.
Dense multi family units - companies can go crazy building and renting them out.
Single family homes is a special American dream. Having them subject to rent seeking greed is not great.
It’s along the same lines of cities saying - in this zones you can’t have Airbnb short term rentals, in this zone primary home owners or second home rentals only, in this zone go crazy capitalistic do whatever you want.
I honestly don’t care about billionaires. But if they are taking a huge pie away from finite resources like livable land/housing, then that is a problem.
Focusing on income inequality or giving free money as universal income is wrong way to look at it.
We just need a healthy distribution of finite resources that yield supply of basic needs.
Needs being Food, water, electricity, internet, housing, clothing, transport, electricity, healthcare etc.
Price gouging of utilities is restricted, no reason why we can’t encourage building more homes and ensuring a healthy gradient of distribution.
The headline is also awful because before 2008 those would be good rates anyway.
If you bet on the 2020-2021 trend continuing you could be in a bad place now, but... that was a weird trend to bet on continuing given the COVID factors that are now largely back to normal. I'm not one to classify the past as some sort of "stable" period that we've now dangerously shifted away from - 1970 was different than 1960 was different than 1980, etc, in so many economic factors - but it's always good to be skeptical of those guaranteeing that the trend will go one way long-term, whether that's "imminent bust" or "imminent boom."
If you weren't able to get in on low rates then, they also likely wouldn't be helping you that much now since prices are only falling slowly. Any downward correction is likely to be a slow painful process since these buyers were generally more financially buttoned-up than the mid-2000s ones were, and will want to ride things out vs sell for huge discounts.
Would higher rates slowly discourage some of the hedge-fund/PE invasion of residential real estate, though?
But yes, you should never assume you're gonna be able to refi. Not that that stops everyone. :(
I once made a bid on a property slightly under the asking price and the bid was accepted, then, upon reading the fine print it was said that the buyer was responsible for the real estate brokerage fee of the seller. So, I asked to see the amount they had agreed upon and this was so exorbitant that I ended up backing out of the deal (I had not signed the purchase contract yet). Then the real estate brokerage contacted me and asked to re-negotiate because they figured they had better get something than nothing. I negotiated it down to 1/5th of their original price and the deal went through.
Weirdest arrangement, so somehow you can push the costs of selling a property to the buyer, who has no say in the amount negotiated. It wasn't exactly a hot property so I think that factored into all of this but I'm still not sure if this was just an attempt at taking advantage of someone new to real estate transactions on that side of the Atlantic or whether or not this is a common arrangement.
As for the 7% mortgages: those aren't all that rare historically, but they were usually coupled with stronger markets and lower inflation. In a weak market agreeing to a high interest rate can set you up for future trouble. So unless you see a mortgage as a way to keep more options open rather than a necessity I'd advise caution.
I've never heard of that in the US.
The buyer 'pays' because the seller puts in the cost of the agent into their asking price, but it's never asked on top of that.
In fact, unlike in Belgium where you need to add another 10%-12.5% over the asking price because the government wants a slice of your hard-earned money AGAIN.
> The buyer 'pays' because the seller puts in the cost of the agent into their asking price, but it's never asked on top of that.
No, this was 'buyer pays fees'.
> In fact, unlike in Belgium where you need to add another 10%-12.5% over the asking price because the government wants a slice of your hard-earned money AGAIN.
The same in NL, transfer tax. And that really adds up with present day real estate prices.
Haven't met a realtor that I liked yet. Worse than car sales people.
I reckon it will be more than a decade before we see anything like the 2020/2021 rates again, if ever.
>> “For buyers, it’s been a tough go,” said Yun. “Not only have prices not fallen, there’s not much inventory.”
As an active homeowner looking to relocate in Seattle, inventory has not been good this summer.
I'll also say that IMO, the economy has not cooled. Even with all the tech layoffs, banking faults, the US$1M+ houses are still selling quickly. I spoke with a family member in finance, who kept saying a recession was coming. It never did, at least not one I can say that affected the economic landscape.
The only real solutions here are to radically rethink zoning at a city level, and potentially incentivize construction of affordable homes at a federal level through new lending programs.
What you will see is a lot more rental houses. When a lot of people move, they will just keep the old house and rent it out, because a huge portion of the value in the house is the mortgage itself.
One wonders perhaps, why is that exactly? Why can't you trade one bit of collateral for another similar bit of collateral?
You owe $300k backed by a $700k house and you want to swap that for a $500k house, why should the note holder be able to call in the loan when you do that?
Then as a seller, I'm lowering the buyer's fees to 0% , and then negotiating my seller's agent as 4%.
There's no way, as a seller, that I'm going to willingly pay the buyer's real estate agent any money. That's the buyer's job, not mine.
When you sell a home and you hire a realtor (sellers agent), the buyer will also likely have a realtor (buyers agent).
When the house is sold, it is "traditional" for 2.5% of the cost of the house to go to the seller's agent.... BUT ALSO 2.5% goes to the buyer's agent, from the seller's sale.
If the buyer doesn't have an agent, the seller's agent get 5%.
The $14 billion lawsuit is all about "why does the seller have to pay for the buyer's agent when they dont represent me?". And looking at that whole pile-o-shit even from a 10000 foot view shows really broken and terrible things.
FDMC/FNMA mostly buy up conforming loans and repackage them. In theory the bundling and government sponsored entity's (GSE) own equity would protect buyers of these repackaged bonds. In practice they did not and the government had to step in.
However, none of this protects against interest rates. If you take a bunch of 2 percent APY loans and bundle them, the resulting bonds are still 2 percent APY and everything seems good from GSE perspective. If rates rise to 7 percent, its just as easy to buy 7 percent rate conforming loans and bundle them into bonds paying 7 percent.
The problem OP brings up is one which the GSEs do not solve: if I own a 3 percent bond but the GSEs are selling 7 percent bonds, I have to sell mine for less than what the GSEs do to compete. The rule of thumb is the asset value drops one percent per APY point below market _per year of duration_. Knowing this, you would naturally shy very far away from mortgages because every percentage point is 30 percent of your delta. (It's a heuristic though, so its not like the example I gave actually trades at a negative price; performs better during "normal" sub 1pct changes.)
In practice people try to find arbitrage opportunities with ever more sophisticated instruments like interest rate swaps to "hedge the risk," but if markets are efficient this is a very small delta that could end up being a negative number. What we saw in 2008 was that the buyers were things like money market funds that prioritized retention of principal, but were dabbling in yield[1] enhancement strategies, given the whole "zero interest rate environment" thing.
[1]: https://www.bogleheads.org/wiki/The_2008_money_market_crisis
“The SVB conundrum”
It's the same way some bonds are callable and others aren't.
And the reason 30 year fixed rate loans are common in the U.S. is because the government (taxpayers) backstop most of the loans. Bank wouldn't be stupid enough to underwrite a 30 year loan at historically low interest rates of 3%.
Now that I am a homeowner with a 30y fixed mortage, I have many unexpected jumps (thousands in home repairs, increasing property taxes and insurance). Unexpected jumps are way bigger as a home owner than they ever were as a renter.
Oh, and my house value has dropped $100k since I bought it.
In general, I live in quite an old house (1800s) and figure it probably costs me a good $15K/year in taxes/insurance/maintenance/other upkeep not to go into maintenance debt. Can be a lot more or somewhat less.
10% is still a pretty serious increase. In France there's an index that is the max that rents can be increased with, and it's usually at max 6-7% (usually lower), and cannot be increased in areas that have significant housing shortage vis à vis demand.
Depends on which problem you're talking about. People getting priced out of the places they live by increasing rents? That one is solved by rent controls. The other big one, of people being unable to find where to live, is compounded to an extent, but coupled with other efforts (highly incentivised building of affordable and social housing, as well as various programs to help people buy the first time, and incentives to buy to rent (at fixed rates) it's not that bad.
All the renter's protections do create obstacles to renting though, with e.g. landlords demanding proof of salaries at least x3 or a guarantor with such salaries.
Here in America we face our massive unexpected jumps in the form of medical bills.
At least this is the case in Ireland. I bought my house in cash.
I know a guy who just did a refinance with equity cash out for 30 years. He’s nearly 70. He clearly plans to die broke.
I’m guessing there are much stronger tenant rights in Ireland where they have a harder time evicting the person and making it impossible for them to find housing later. (Credit score, legal records, etc.)
The 4x income and 20% deposit is very common here too. Going past 4x would require unusual circumstances. People doing lower deposits and/or higher ratio incomes are not common especially in the major cities. You might qualify for a special loan from the VA or through FHA but it has penalties like having to pay PMI and being locked to only homes of a certain price.
Reposession in Ireland takes years. And the existence of strong protections against firing means banks only (usually) lend to people with permanent jobs, even if you have years of income on temp contracts.
Note that, for Ireland, this is because you're a second-time buyer. It's 10% for first time buyers.
Today, mortgage rates in the US start at about 6% for a variable rate, or 7% for a 30 year fix. If you have <20% deposit you'll pay about 1% PMI, too. In Ireland, the age of the 2% mortgage is definitely gone, but you'll pay about 4% variable, or 4-5% for a normal 10 year fix. Avant will give you a 30 year fix for about 4%, though there is limited actual demand for such a product in Ireland.
By the way, you can get a mortgage that goes into retirement, though the bank will certainly want to see evidence of a pension... You can also get a mortgage if you're self-employed; you'll want about three years accounts and for either of these cases you'll probably need a broker.
So, really, it's swings and roundabouts to an extent; Irish mortgages are a lot cheaper than US ones. To some extent this is structural weirdness; the banks have more deposits than they know what to do with, and under ECB stress testing rules they have limited things they can feasibly _do_ with those deposits, so their cost of funds is relatively low.
It's the same shit everywhere in the west. Real estate is priced at the maximum amount the market would bear.
And the market would bear to pay the amount banks will allow buyers to borrow (to first approximation).
So if banks allow 30 year mortgages, the market would bear up to 50% or so more than if banks allow 20 year mortgages.
So yes your statement is true, because most people can never buy a home so there's no loan involvement at all.
But I'm pretty sure that's not what you wanted to say.
If you have ever taken a mortgage in the US, you know there are a lot of time horizons available.
The Fed's low rate policy during pandemic and then the rapid rate rise has broken the housing market. There is no reason to sell and no reason to buy.
That's why you see a severe transaction drop but roughly no change in prices. It'll be this way for awhile.
Or reducing demand, as GP said, from companies withdrawing from the market.
So being very generous, maybe 10% of the supply is really counting on price appreciation versus income.
If demand withdrawals, supply will as well.
(I don't think big tech's revenue is going to drop, to be honest, because so much could happen before it stopped growing.)
Also, it’s not really a “haha, you suck at planning” so much as a new generation is hit with much higher home prices when they are entering buying time of their life.
Mortgages have been 4% for the last 20 years or so, so an entire generation has had 4% mainly due to government subsidization. And now the government can’t or won’t do that any more. If the next generation can’t buy homes because prices and rates are too high, that’s not good for social stability.
I don’t think it’s the French Revolution, but I do think there will be “why are we not paying for social programs when we have mortgage interest rate deductions for people with $750k mortgages [0]. That was palatable when the middle class had mortgages. But people who are stuck perpetually renting will likely vote to stop that.
[0] https://www.rocketmortgage.com/learn/mortgage-interest-deduc...
Interest rates these days aren't so low you can almost ignore them (e.g. you probably don't want to keep a lot of money in literal cash) but they're not late 70s/80s often double-digits either.
Revolutions often historically start from disillusioned middle classes who have the time and energy, desire to have things (political power, economic means, etc.) and means of organising, and/or students. When they have some and don't have to worry about the next meal on the table, but want more.
There are definitely big swathes of the US population which has some political and economic power, yet are severely disenfranchised and ignored politically, and squeezed financially on all sides. Add in severe partisanship and general mistrust, agressive propaganda, and yes, you do have favourable conditions for a revolution. Not in any way guaranteed of course.
Hell, we had 30 years of hollowed-out de-industrialization in the Rust Belt, with hardly a peep on the "revolt" front. There's been slow electoral changes, however.