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Comment by adamleithp | Hacker News Reader

I’m remortgaging next year and with interest rates as they are and what they’re predicted to be, I’ll be paying off only interest. I’ll be back to paying rent essentially. It’s a scary thought.

I don’t know how people (not 4%) are surviving.

How would the housing market bubble bursting affect people in this same situation?

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Please don't accuse me of being a boomer, but I view interest rates as finally getting back to normal.

When I bought my first house in the early 2000s, mortgage rates were in the 6-7% range. I remember my parents had a 13% mortgage in the 80s. Its only in the last few decade or so that we've seen these 5% or lower rates. I think we just have to get used to it, and maybe the AirBnB crash will help at least lower the price of the house and make things more affordable..

The difference is that wages have not kept up with inflation nor with productivity and house prices are much higher. And another big problem is that the whole thing was poorly managed. People built lives around low interest rates, and people that were responsible got screwed over. I don't see how we suddenly flip that. Expectations were not clearly communicated.

I often feel like a lot of social policy is simple as long as people understand the tradeoffs and everyone is on the same page. Unfortunately that has not been the case.

I'm hoping the recent trend towards more active, powerful unions that we're starting to see now will reverse the wage trends.

The problem is that the very low interest rates we've had over the last decade are just not sustainable long term. At the very least, the Fed needs a quick, easy way to stimulate the economy, and having a minuscule prime rate leaves them without the biggest tool in their toolbox.

Unions will only be able to increase wages while preserving the company if we remove cheap, low wage foreign competition. I think that has been a root problem for awhile.

They haven't kept because of the low rates. That has now changed but it might take a decade

Why would you build your life around low interest rates? Historical rates are a Google away. If you levered up with zero room for rising rates, you were not responsible.

What's with all the people complaining about the rates? I'm appreciating earning 5% on my savings. There are two sides to every trade.

Without posting the details, was 13% that your parents paid a significant chunk of their joint earnings? This is the more important aspect of the current situation, not the percentage number itself.

I wasn't privy to too much of their financial details, but I know the rough price of the house. Assuming we were "average", based around average income for the year we moved there, it was about 40% of the average us income.

Huh. According to this post the payment-to-income ratio now is around where it was in the early 2000s, but is higher than in the 1990s. Both still significantly lower than the 40% your parents paid.

https://www.businessinsider.com/housing-market-homeowners-sp...

Well if my home price decreased in value by 20% that would probably give me roughly the same payment at a 7% interest rate (versus the 3.25% I currently have). The issue of course being that my house has slightly increased in value during the time that interest rates started to increase. When you combine those two things together if I bought my house today I would pay about $1,000 more a month for the same 3 bedroom house that I closed on not even 2 years ago.

Interest rates are definitely returning to normal, and home prices will simply have to decrease correspondingly.

Here's a graph of the Bank Rate of the Bank of England (the UK's central bank) going back to 1694: https://fred.stlouisfed.org/series/BOERUKM

> I remember my parents had a 13% mortgage in the 80s.

It could be a 100% interest rate, without also looking at the cost / income ratio it's meaningless.

Depends on how you define "normal". My parents had a 4 7/8% mortgage on a house they bought in 1966. (The only difference is that they had a prepayment penalty. The 1970s and 80s taught lenders why they shouldn't put that in.)

So, depending on your time frame, the 70s and 80s were abnormally high, post-2008 was abnormally low, and 5%-ish is "normal". (I think, if you keep going back, 5% continues to be kind of normal, but I don't have the data in front of me.)

> Depends on how you define "normal"

I think the housing market has been too variable over the timespan when it has really existed (~100 years) for there to even be a "normal". I do think your guess of 5% for the short-term future is probably not too crazy though.

The long-term historical baseline interest rate for any kind of debt is 6%. I tend to see it as normal too, though may go high for a while in reaction to the artificially low rate of the last decade. Home prices relative to household income are high though.

Why do you have to remortgage?

Probably and ARM loan.

Probably the end of a fixed interest period approaching. This is the case for some %age of the total number of mortgages out there every year. It's also the moment you're going to be taken advantage of.

Taken advantage of how? Where you taking advantage of the bank with the prior rates?

Taken advantage of because you have to deal with them. Previously you had the option to walk away. But when the fixed interest term expires you are going to have to make some kind of deal because very few people can switch to being homeless or paying off their entire mortgage at the drop of a hat.

Presumably a 10/30 loan or something similar. Many homeowners are facing the same problem with the interest rate now being significantly higher than when they got a 10/30 initially.

I think most places outside of the US has fixed term lengths of max 5 years for which you can lock in your interest rate.

Yeah, the US is an outlier. In most countries the government doesn't back mortgage loans so we have to refinance after a few years. Basically every mortgage in countries like Canada and the UK is what the US would consider an "ARM".

Canada's government backs mortgages through the CMHC.

We have shorter term fixed rates, usually capped at 10 years. We also have variable rate mortgages, which are ARM equivalent.

yeah common in Canada. Generally 5 year. House is amortized over 25 but you basically renew the loan every 5 years.

US-style 15 and 30 year are unheard of. Kinda glad I didn't buy during COVID cuz I'd be getting slammed now...

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