I would think the idea is that if the rates stay up, prices should eventually come down a bit to help bump people into moving? Is that not the idea?
That is, I don't think moving is usually driven just by prices. Is it? Investing largely is, but investment firms buying up neighborhoods is its own problem.
But a lot of these moves are just improvement moves. Move to a bigger place to have more room for kids. Move to a smaller place to save on mortgage for empty nesters. Move to make your 1 hour work commute 15 minutes. People would love to make these moves, but if the money doesn't line up - it isn't going to happen. Very few of these are REQURIED moves.
For sure required moves exist. Live in a studio and have a kid or two. Get a very good job 1000 miles away. Graduate college. But these are not "most" moves.
Has some actual numbers that are interesting. Moves slowing down as you age lined up fairly similar to my path, I think my entire life moves were at like:
21, 22, 23, 28, 30, 33, 37...
and I may not move again, or if I do I would see it as 10+ years out.
The challenge is that higher interest rates increase the total cost of buying. Standard demand curves tell us that the quantity demanded at a higher cost is lower.
In a typical market, an increased cost is balanced by sellers increasing the quantity they sell. However since housing is almost exclusively bought with loans, and the current increase in cost is driven by interest rates payed to mortgage brokers rather than the cost of the home passed onto the seller, we don't see the same increase in supply relative to the cost of buying that we would expect in a market not driven by loan dynamics.
Tl;Dr: Higher interest rates increase costs to buyers without increasing profits for sellers, reducing the total number of units selling at a given price.
I'd guess that the automobile market is similarly impacted, just has a larger buffer in the used marketplace to eat in some of the negatives?
Is there a viable path to lower costs on housing? :(
The only reason a loan is harder to get when interest rates increase is because the monthly payment at a given principal goes up, and so the lender needs to see more income to trust the borrower will be able to pay. If the price goes down, and hence the principal goes down, then the monthly payment goes down, so the lender needs to see less income to trust the borrower will be able to pay.
Basically, bottom line is people care about monthly payments. Interest rates going up means that the same houses have higher payments. You /could/ expect that prices going down would be enough to keep people happy to move. That is indeed what I was asking at the open.
However, stock going down means existing values goes down, which is just another form of trap for people. Specific trap being that many moves are leveraged on older equity, but to get out of the old loans will now require more cash.
This is largely because older equity was also under a leveraged loan. In markets that are not so heavily loan driven, the existing assets are straight forward to manage and convert into down payments on new properties. Housing is specifically not that.
If I'm misrepresenting that, please correct me.
The vast, vast majority would be more mobile since homes are cheaper, and the cheaper something is, the less money you need to buy it.
The government gave a gift to many people in the last 20 years of keeping interest rates near zero and pulling forward all that price appreciation. Unfortunately, the future generation might not want to expect the same treatment.
The problem is people are very very happy when they can make some cash off a move. People are very very sad when they are underwater. To all the people that paid $250-$275k for the house above? They are going to delay for a very long time before they sell for 200k. Likely long enough that inflation will slowly bring up the value.
People are very emotional about this and do not make wise economic decisions. For example - the finances of the time may mean that the house they are both selling and buying are 30% down. But it's a real feel bad, and losing money in a house is enough to stop many people from moving. a 30% gain where the seller both makes money on their sale AND ends up paying way more in total? It feels good and people jump on that instantly. (And the way down payments work, its generally easier for someone with limited liquid assets to to the sell + buy when the market is up 30%, vs when the market is down 30%).
When supply is very low, you only need a small group of buyers being able to afford sustained high prices. It doesn't matter if the general public can't afford a 400K home. Only buyers need to be able to afford it, and you'll always have a group that can.