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Comment by darth_avocado | Hacker News Reader

It’s so ridiculous that economists, policymakers and even the fed is so out of touch with the reality of the market. The housing market highs are a result of less supply and not high demand. 90% of mortgages are locked in under 3% rates which ensures the lack of supply will continue in this high interest market, and in some sense even make it worse. A very low percentage of people will be so stretched with student payments that they’d give up on homes. If anything all sectors except housing market will take a bigger hit as housing takes priority over everything else.

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It only takes a small nudge in the economy to force a lot of real estate back on to the market. A small uptick in unemployment could force the number of homes on the market to double or triple in certain areas.

90% of mortgages may be locked in under 3%, but no one who has payed off their home is going to sell that and wind up financing another house with interest rates where they are at.

Interest rates are not that high currently. Sheesh you give people a taste of 2.5% and they act like 7% is usury.

That’s a ridiculous statement. It’s not the rates that matter but the monthly payment. A 800K mortgage (which is a very reasonable number in most cities), would be a 3K/month payment @2.5% but 5.6K/month @7.5%.

So excuse me if I complain about having to pay almost twice the amount.

People like to give the example of high interest rates in the past and how that was fine, but often forget to account for the fact that home prices were low, home ownership numbers were high (thus stable supply/demand), income to cost of living and income to cost of housing ratios were much more reasonable than today. So yeah, high interest rates work in different conditions but not in the distopia that exists today.

Right but in that case the housing price and not the interest rate is the problem, isn’t it?

Housing prices: record high

Interest rate: pretty moderate

Problem: the pretty moderate thing?

The solution to either of these problems is different. Answer to high housing prices: build more. Answer to high interest: lower interest, which then inflates housing prices, which without more building means just more people priced out.

The issue is prices which is an issue with supply.

I agree but with a caveat. My original comment (the parent on this thread) was about supply. Ideally moderate interest rates are not a problem, but when you get there by aggressively hiking the rates after a decade of low rates, it becomes a problem. Mostly because anyone who didn’t benefit from the environment (90+% of the population), will have a hard time catching up even with moderate rates.

I can’t tell if you’re being sarcastic or not but the jump from 2.5% to today’s 8% doubles the monthly payment, so I can see why people complain about it.

It’s literally usury.

What do you think usury is?

Lending money out at unreasonably high interest rates.

Which makes 7% usury.

Mortgage interest rates have been far, far higher than 7% in the past.

In 1981, the average mortgage rate hit 16.63%. The rates were higher than 7% all through the '70s, '80s, and most of the '90s, not dropping below 7% until 1998.

I know, I was there.

My first job back then paid $4.75 an hour, and I bought my first home for $37,500.

So go on, keep fucking telling me things were harder back then.

Nobody is saying things were harder they’re saying interest rates aren’t the problem. Note the principal on your first home.

It’s definitely the interest rates in combination with incessant printing into inflation.

How do you think the principal got higher, magic?

By not building homes at anywhere close to the rate of population growth. It's so obvious by looking at the data you'd be gobsmacked anyone is talking about anything else before simply building more houses. Eliminate most zoning, bring in labor from outside the country, train up domestic labor, create incentives for construction and construction tech, so on and so forth.

There simply aren't houses.

Inflation doesn't help, but housing prices have risen way faster than the rate of inflation. So again: find the actual problem and solve it.

Why do you think neighborhoods with single family homes that have insanely high appreciation don’t want new houses built?

Because it’s their only high growth asset, and their largest.

How did it get that way?

You can go step by step through this process of root cause analysis and see that it is because our money is weak.

7% is not unreasonable by any stretch of the imagination.

Do the math and tell us the income you'd need for a $1,000,000 house at prime.

It's unreasonable. Pay a loan to term one of these days and you'll see why.

Don't buy the $1,000,000 house if you think it's too expensive.

It's only (over)priced that way because rates were low and prices haven't adjusted to current rates yet.

I don't think those are the only reasons house prices are high now.

Why don't you try telling the whole truth.

House prices are high because governments are printing money like mad.

You're right I shouldn't have said "only", but in my opinion it's the main reason. And of course there are several reasons rates move.

When rates were around 3% not so long ago, the monthly payment on a $1M loan was around $4k. Now at current rates the monthly payment is closer to $7k. As a buyer, that's pretty hard to shrug off. It ends up eliminating entire classes of buyers just like it added them when rates were going down.

Just like 7% inflation isn’t that bad because it could be a whole lot worse?

I mean it could be worse, the government could declare the old currency is deprecated and that we can only convert $2000 USD into the new currency.

Look, a 10% interest rate isn't that much on a $10,000 personal loan. But that doesn't even buy you a new car today and for a measly apartment in a major city you gotta be prepared to spit in the vicinity of $1,000,000. This insanity has to stop, hence the high interest rates.

The prices are high. Not the interest rate. And yes the distinction is important because the solutions to each problem is different.

Not sure high interest will result in any meaningful decrease in real estates prices. Best case they might stay stagnant for a few years which would allow wages to catching up a bit.

True, but people who paid off their homes can often move and buy their next home for cash, especially if they're downsizing.

that only works if you can sell your home for what you paid for it. Demand contracts when interest rates rise.

Here in Norway, a big issue in the smaller districts and towns have been that people are moving to the bigger cities[1].

The result is a lot of empty houses.

Still, it can be difficult to find a home in these places for those who go against the flow, because those who leave (or inherit) often keep the house as a vacation home[2][3].

On a related note, since so few move to these places, the prices are quite low, so building a new house results in a significant loss from the get-go[4]. This means it can be difficult to get a sufficient loan to start building.

[1]: https://www.nrk.no/vestland/byene-vokser-_-distriktene-blor-...

[2]: https://www.nrk.no/nordland/tross-mange-tomme-hus-er-det-bol...

[3]: https://www.nrk.no/nordland/boligmangel-i-distriktet-far-tra...

[4]: https://www.nrk.no/nordland/verdien-pa-hus-i-distriktene-hal...

Eliminate the portion of demand from investor ownership of homes, by outlawing it?

34% of Americans rent. Virtually all of them from investors. What will happen to them if you disallow investor ownership?

What is the investor fraction and how does it compare to other countries and the past?

Without these basic stats, suggestions like this are dangerous and verging on Mao’s bird genocide.

If the problem is, as you say, "less supply" that means that it's mostly a local problem requiring primarily local fixes. "economists, policymakers and even the fed" aren't local actors.

Can you make some money with that bet?

housing is NOT a market.

Could you give an example of something that is a market, unlike housing? And why?

Is a super market a market? Or a stock market ?

Of course it is. Anything that is bought and sold is a market.

You're right, it's an essential service and a human right.

Everyone should have access to reasonably well maintained, warm / cool, shelter they can call their own.

Its not an ideal market, but no real markets are.

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