30-year fixed mortgage rate just hit 8% for the first time since 2000 | Hacker News Reader

30-year fixed mortgage rate just hit 8% for the first time since 2000

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108 pointsthrowoutway179 comments

It's a very interesting time indeed for the housing market! These next 6-12 months are going to tell us something very big about the economy, crash or no crash. If anything, however, the Fed has built up an ability to drop rates if things go awry, so there's padding in the cushion if a fall does happen.

An interesting stat: We're almost back to our 2022 quantity of _new_ listings in October [1]. That's substantial because we've hovered around 20% below last year's number for just about every other month this year. One of the big stories of real estate is that sellers don't want to sell because they all locked in killer rates on their current homes, and buyers can't afford to buy with home prices AND mortgage rates what they are.

So, seeing even a slight increase in new listings (or the lack of a seasonal dropoff) is maybe an early indication of an easing of that stalemate. At the same time, time on market is still really low, which means that sellers are tapping into the high levels of demand that still exist. As a result, overall inventory isn't increasing.

All told though, even with those slight indicators, it's still a really tough time to be a buyer, and for the real estate market overall. The best hope that most have is that the dam leaks more, or even breaks on listings, and of course, if prices start to fall meaningfully, folks will want to cash out high, and you might get a proper "crash".

I personally don't really see it, but anything can happen, and we'll know soon enough!

[1]: https://www.redfin.com/news/data-center/

(Disclaimer, I work at Redfin)

> it's still a really tough time to be a buyer

The fact that I heard this exact same statement when interest rates were at 30-year lows really goes to show how constrained the supply is.

I doubt low interest rates help buyers all that much. If there are 3 properties on the market and 4 buyers, it doesn't matter what interest rates are, the 3 highest-earning buyers are going to get the houses and one will miss out. The amount of money borrowed might go up and down, but there is a physical balance equation that must be satisfied which doesn't care about the financial situation.

In theory, low interest rates will reallocate resources from other sectors of the economy to housing, causing more to be built. In practice I don't know how big a factor this is though - I'm used to there being regulatory restrictions that prevent new housing being built in high-demand areas. But that might be an Australia thing. Regardless it'd lag interest rate changes by a few years because it takes time to organise new construction.

Assuming that prices adjust to keep total payments constant, high interest rates actually help buyers* since the mortgage interest is tax deductible.

*As long as you ignore the value of equity

You can also pay a house off early much faster if the payment component is more interest than principle.

Yeah people are constrained by how much they can pay off each month. Either that’s higher prices with lower interest or lower prices with higher interest.

Low interest rates don't help the buyer. It helps the seller.

Whatever benefits the buyer would have had are reaped by the seller with a higher price.

But most sellers, unless downsizing, will also be paying more for their next house.

Low interest rates have been terrible for buyers.. Low interest rates are a huge part of why there is such a massive bubble in the first place.

The drove up prices, making the down payment side harder. Higher interest rates should bring down the sales price, making down payments go further, but we're only halfway seeing that. My thinking is because the shortage masks that, but people married to their underwater 3% fixed-rate mortgages also does (for now). Ironically, this seems to be driving homebuilders to build more.

I'm guessing we'll see a weird mix of the following with the fed adjusting policy to keep everything together.

-80s inflation (higher interest rates hurting real property value, especially in higher value coastal metros)

-90s stagflation (a significant decline in national real property values masked by some inflation)

-50s postwar economic expansion (economics/warfare in EMEA keeping demand for US energy, agriculture, and products high even with higher inflation hurting asset valuations)

I believe that many people are starting to fear that their lower rate mortgage exceeds the value of their house. While, in the long run, they’ll likely be fine but the near term may be 10-15 years of stagnant or declining home values. It’s also looking like the Fed is very intent on keeping rates higher for longer, and/or possibly hiking them again, further increasing the burden on buyers. It’s not looking good for sellers or buyers for at least the next 18 months. I suspect a crash in the housing market will occur but we haven’t had enough time to see foreclosures pick up to start the cascade downward.

Looking at how homes are insanely overpriced (worse here than in the US) that is not a bad thing. The only sane market at this point is +1M houses which is simply rediculous.

It’s a great time to be a buyer if you’re buying all cash

... which almost nobody can afford not only due to prices growing to absurd levels

> sellers don't want to sell because they all locked in killer rates on their current homes

What happens is that house prices drop way below what they paid, and ends up equalizing their monthly payments with what someone who buys at the higher-rate-but-lower-price is paying. Except these people are locked into their current arrangement, since they cannot sell at a price that would cover the debt.

Some can ride this out over a number of years, some will end up taking a big hit because, for one reason or another (divorce, child birth, etc.) they have to sell and move. If you're old enough you will have seen this play out before.

You're being overly optimistic because you work in real estate and people are blowing rainbows up your ass. If there's a crash, JPow lowering the rate would prevent the housing value correction from taking effect and nothing good would come of it.

There MUST be a crash. Look at all the people who are sitting in homes worth many times more than they bought it. Significantly higher value than a few years ago. Do you think these people are doing well as a result? No! They can barely afford their insurance!

People want the house values high and their insurance dirt cheap, but it's not possible. The housing values have to drop a good 80% for people to be able to afford their homes long term again and for the insurance companies to stop pulling out.

I want the market to crash and correct as much as the next guy but thinking house prices are going to drop 80% is pure fantasy land. What's more likely to happen:

- Big corporations and billionaires hoover up the properties forcing more and more people to rent in the long term (you will own nothing and be happy)

- Companies are finally forced to raise worker wages which, through a variety of means, they have managed to suppress for decades.

The latter is what should happen but the former is what is more likely to happen, with all the evil that entails.

Companies would not be able to raise wages fast enough to keep people in their homes

Exactly. They've been getting away with it for close to 50 years at this point so the pain of getting them to where they should be if the profits had been shared fairly and not routed to investors and the C-Suite is absolutely massive. It would take a good few years (probably a decade) to get there, and a lot of companies that only exist because of that worker exploitation would go under, but overall it would end up being a good thing. If wage growth had kept pace like it should all these years, I'd wager the current property prices would actually make sense.

I lost my house to foreclosure in 2008. I track the price according to Zillow and if memory serves, it dropped from roughly 600K to 520K. If we do have a correction will probably be on that order of magnitude. If the correction is much greater, a lot of people will thrown into poverty and onto the street. I suspect however there would be enough political will to make the banks take a haircut instead of everyone else.

> If the correction is much greater, a lot of people will thrown into poverty and onto the street. I suspect however there would be enough political will to make the banks take a haircut instead of everyone else.

Both are gonna happen. Yes, a lot of people will be thrown onto the street. A lot of banks will go under.

Institutional investors have largely gotten out of residential properties in the last year. Homes aren't good investments unless expanding supply is illegal, which it has been, but they could change.

> 80% is pure fantasy land

This hotel in SF just dropped 50% since 2016. Billionaires are over their heads on real estate; how are they gonna hoover it up when they can't afford their existing loan payments? It can and will happen.

https://sfstandard.com/2023/10/19/downtown-san-francisco-lux...

A 50% reduction for one luxury apartment tower in the city most affected by remote work in the entire world and one that also has a notorious crime problem. What is your reasoning that this can be extrapolated to an 80% housing market crash on the national or global level?

I can tell you honestly that I am personally hoping for a crash, and that's in part because I work on real estate. Home prices are unsustainably high by such a margin that it's absolutely killed transaction volume. Sure, earnings per transaction will go down, but we desperately need an increase in volume.

Plus, I want housing to be affordable despite my economic incentives.

When I say that I don't see it happening, I just don't quite see all of the indicators just yet. If we start seeing a sharper increase in new listings coming on market, or new construction prices significantly dropping, then I'd certainly change my outlook.

The problem is the Fed is using the only tool they have, the federal funds rate, to control the housing market. Yes, it has the effect of cooling the market but it doesn't solve the actual problem, actually it exacerbates it: there aren't enough housing units where they're needed. That's a supply problem. It's the insufficient supply that's the root cause of housing prices rising. The irony is raising the federal funds rate makes it more expensive to build housing so it tends to cool down construction and thus further constraining supply.

What have we actually accomplished? Locking people out of home ownership. But the Fed only has one tool and they're using it to the best of their ability.

> The problem is the Fed is using the only tool they have, the federal funds rate, to control the housing market.

No, they aren't, they are using it to control aggregate consumer prices and employment, their actual mission.

There are institutions with finer grained powers whose job is to manage the economy on a more fine-grained level (Congress at the federal level, plus states generally more locally), and the problem, insofar as there is one, with the management of the housing market is their (in)action, not the Fed.

This is why we the millennials and more importantly gen z must vote and actively and loudly participate in the political process.

Right now, the government is preventing wages from going up in a (futile) attempt to keep prices low for retirees and soon to be retirees who are on fixed income. This is NOT what we want. We want wages to go up as corporate profits go up.

I want prices to come down, I want affordability to go up . Who cares if wages go up and prices go up even faster.

The question is not what is the price of a house, but how many hours does a median wage worker need to work to afford their house, their car, their utilities, education, healthcare e.t.c

US is slowly becoming a zero sum game as the growth shrinks to ~1%. We need to increase the pie.

> US is slowly becoming a zero sum game as the growth shrinks to ~1%. We need to increase the pie.

That's what happens in a consumer-driven economy. The idiots never once stopped to ask themselves where the consumers get their money.

I don't it will crash. Democratic party tends to go socialism...in this case they are bailout-ish them Rep. In this case they will quietly bail large properties and banks to ensure it wont crash...just drag and stagnant like Evergrande and others in China. It seems to work over there. As long as people willing to go thru a wasted decade like Japanese did, it won't crash.

Question from an Australian(ish) here.

If you Americans buy a house with an 8% mortgage today, can you remortgage in the future if/when the rate drops. Is the buy-out penalty of remortgaging somehow higher than just selling / repurchasing?

Do people get locked into higher mortgage rates for long periods of time that are uncompetitive is my question. Is there a significant downside? Is 30-year fixed normal in the states?

30-year fixed rates don't exist in Australia. You'll get a 5 year fixed rate from ~6% or so, that's about it.

30 year fixed and 15 year fixed are very common. There is also 5 year fixed then variable, but those burnt a lot of people in 2008 so they have a bit of a bad reputation with some. There are generally no early payment penalties. Refinancing is easy and considered worthwhile whenever the rates improve by 0.5 percent or more.

Yes you can refinance at a lower rate if/when rates drop.

You have to pay some money to do so, but it's insignificant compared to the cost of interest if it's over a percent lower or so.

There are usually no pre-payment penalties.

I imagine a lot of people buying houses right now are counting on mortgage rates dropping in the future.

*so long as your house appraised for high enough value to meet the debt to equity ratio. So if mortgage rates go down, but your home price crashes 10%, you’ll likely only be able to refinance by significantly paying down the mortgage balance.

If rates drop, you can refinance immediately, assuming your credit score/income are still sufficient enough to qualify for a new mortgage.

you can refinance when rates are lower. The question is when they will be.

And pay significant early termination fees.

Mortgages in the us don’t typically have early prepayment penalties of any kind.

Unless prices drop below your mortgage balance.

Prices are not likely to crash with the conditions we have in place currently. Prices crashed in 2008 because there was 10 to 15-year-long bipartisan push that "everyone needs to be a homeowner." This let banks write adjustable-rate loans to people who arguably never should have been touching a mortgage given their financial situation. And when interest rates reset, enough people started defaulting that the whole system collapsed. And that's without getting into the funny business of securitizing those bad mortgages and using them as investment vehicles.

These days, mortgages are generally very well-underwritten and only given to people who can afford to pay. High interest rates are going to put a cap on prices, but where we're at now is a supply crunch. 2008 wiped out the homebuilding industry and now there's a supply crunch with not enough houses for the amount of people who want to buy, which is driving up prices.

Yes, you can refinance to a lower rate. It’s easy and people do it all the time. There is some cost overhead so you don’t do it everytime rates drop a tiny bit. But if they drop more than 1% it’s easily worth it.

> Yes, you can refinance to a lower rate. It’s easy and people do it all the time.

It's almost unbelievable how easy it can be.

I got a call from the company that held my mortgage asking why I hadn't responded to the refinance offer they had sent me. I told them I wasn't aware of any such offer. They said they had FedExed an offer to me a couple weeks earlier.

I went and looked on the front porch, and sure enough there was a thick FedEx package there. I hadn't noticed that because I used the back door as my main entry/exit door.

Inside was all the paperwork, prefilled, for a refinance with instructions that said all I had to do to accept was call them and tell them, and then they would send a notary to meet me at home or at my office with a copy of the documents for me to sign.

It's easy to refinance at a lower rate. You essentially just pay for and qualify for a new mortgage, the fact that it's a refinance and not a new house you're buying is mostly immaterial.

So you're out a few grand in fees, and if you somehow become less creditworthy it may not work.

When interest rates first spiked it seems like the prevailing wisdom was that they wouldn't stay high for long, so buyers should just swallow the higher monthly payment "for a year or two" then plan to refi.

I don't hear that advice much anymore!

The American mortgage market is very unique from the perspective that it has 10, 15 and 30 year fixed rate debt. There are generally no prepayment penalties and no balloon payment (each payment is the same amount even the last one). You can pay down extra any time you want and it reduces your principal appropriately.

The maturities and payment structures are quite generous compared to many other countries mortgage products. Of course there are shorter maturities and different types of adjustable rate mortgages but these are not popular (fallout from 2008 crisis and the general low interest rate environment).

Edit: there is also 40 year fixed products starting to be offered.

What is the cause of it being do different from the rest of the world?

Government policy. The US has multiple quasi-government mortgage market makers (because just one is somehow not enough...) that define baseline terms for home mortgages, and everyone must play their tune. See Fannie Mae and Freddie Mac. Seriously. That's what they're named.

There is another one tangentially involved as well that I can't remember the name of.

Exactly. Fannie Mae and Freddie Mac buy about around 70 percent the mortgages issued by banks. They only by conforming mortgages, meaning conforming to their terms.

https://www.investopedia.com/articles/economics/08/fannie-ma...

See also the Federal Housing administration which insures loans.

https://www.hud.gov/program_offices/housing/fhahistory

One can see there really isn't a laissez faire free market at work when it comes to housing in the US. The government is in deep and it's regulated out the ying yang.

> One can see there really isn't a laissez faire free market at work

One would think. Yet there is never a shortage of "See! That's Capitalism For You" comments.

> See Fannie Mae and Freddie Mac. Seriously. That's what they're named.

Well, colloquial names for "FNMA" (Federal National Mortgage Association) and "FHLMC" (Federal Home Loan Mortgage Corporation) anyway

We also have 20 to 30 years fixed rates in Belgium. It seems to be possible in France, Germany, The Netherlands, …

So I’m not sure that the US is actually an exception.

A family member recently got a long term fixed low rate mortgage in Belgium and I’m curious about how different things are compared to the UK. UK mortgages are higher, shorter term.

Is the Belgian bank losing money compared to the UK one? Is there state intervention?

There is no state intervention. Depending on market conditions, a 30 years fixed can have a higher rate than 25 years.

It’s basically hedged with long term bonds (Belgian or European) + a profit margin for the bank + risk based on your profile (age, health, employment history, …)

I guess UK banks are just hedging with shorter term bonds compared to Belgian ones.

In the UK it's long been possible to get a kinda long term fixed rates - at least 10 years.

They just don't tend to sell very well - when interest rates are low [1], it's not particularly appealing to fix at 2.69% for 10 years when you could fix at 1.94% for 5 years or 1.25% for 2 years.

And coming off the back of two decades of rock bottom interest rates, a lot of people didn't anticipate that they'd be remortgaging at a >5% interest rate.

[1] https://web.archive.org/web/20170921064712/https://www.barcl...

Spain is also similar. We recently locked in a 2.65% for 5 years but 15 years around 3% was also available. That 15 year came with early repayment penalties though.

The big difference is that in most European countries I know of you are locked into that fixed rate for the duration of the loan and cannot re-finance or pay it off early without getting hit with huge penalty fee, essentially equal to the lost interest payments the bank would be missing out on. In the US you can pay off and/or renegotiate early without those penalties.

Paying off an extra 10% of the loan each year without penalty is usually possible in the Netherlands for a 30 year mortgage. I did it this year.

This sounds strange. Banks typically hedge their fixed rate loan portfolio because there aren't many equivalent long-dated fixed-rate funding sources available to them. If the US market is such that borrowers can repay early or renegotiate long-dated fixed-rate mortgages without penalties, the banks are practically guaranteed significant losses when fixed-rates decline. Do US banks just charge higher spreads than European ones to compensate for this? That sounds undesirable, similar to tax loopholes: everyone pays more to compensate the enlightened few that actually take advantage of something that _everyone_ would want to do.

The US mortgage market is essentially backstopped by the US government. Banks can sell the fixed rate mortgages to a government backed bank at a guaranteed rate and so don't have to hold the interest rate risk on their books. The US government (both parties) has long believed that home ownership is important and have a lot of policies to encourage it, this is one of them.

You can repay early in the Netherlands as well. A friend of mine works for a major bank to hedge the risk of their mortgage portfolio. He mentioned once that the biggest risk for Dutch banks is not the risk of default, but risk of early repayment. This always surprised foreign investors when they did due diligence to invest in Dutch mortgages.

There are ways they use to hedge for this risk. I don't know if this is desirable, but that is probably the case in the US as well.

Not true, depends on European bank. I did pay my mortgage which was originally 25 years IIRC in Czech republic fully, one time payment, with no extra fees associated to this. Whether bank was happy or wanted me to keep paying all those years is another story, but their contract specifically allowed it.

In my French mortgage, I have 25 year fixed part, no point paying down that one earlier since the fee would be the sum of all the fixed interest for 25 years (what you wrote). Then the other part is calculated every 3 months from EURIBOR (not that great now, just like elsewhere). This one I can pay partially or fully anytime without any fees.

My Swiss mortgage is completely different and unique beast (also split in 2 parts, one fixed 1 variable from Saron rate), nothing you can see anywhere else in the world IIRC. 20% cash downpayment as usually, then in next 15 years I need to pay off another 15% of the property, and rest is just interest payments. We'll never fully own the property, and its very disadvantageous tax-wise to own it(so nobody here does it if they can avoid it). Swiss invented an additional property tax (Imputed rental value) that is calculated from hypothetical rent you could extract from given property, and you are taxed also from this theoretical income, even if its your primary residence.

Great depression is why.

Before real estate loan terms were exploitive interest only loans that the bank could call in any time. Worse they could demand payment in a fixed amount of gold. And when they foreclosed the owner lost his entire collateral.

First three years of the great depression was an orgy of foreclosures driven by bankers greed and panic. FDR closed the banks, seized all gold except for personal jewelry. The new deal introduced 30 year fixed rate mortgages to make sure the banks couldn't do that again. Loosening rules led to the 2008 crisis where they did it again. But the rules did still protect most.

A perspective from an American:

- Yes, typically we can refinance whenever we like, _but_ it extends the mortgage for a 30 year term, along with additional direct immediate costs (plus human inertia). Unless interest rates were alarmingly high for your last go-round (ehem), you're directly incentivized and indirectly likely to not do so.

- I own properties in Canada (yay Commonwealth!). The notion of a 30-year fixed does not exist. One can get a 25-year amortization, but typically only with a 5-10 year guarantee for a fixed rate.

- As an American, Canadians are insane for buying into this system. Our system is so much more favorable to anyone with good enough credit to be approved for a loan it's literal comedy. Also our standards for approving someone for a loan seem to be lower (that said, I had no credit history in Canada when I started this adventure, so perhaps residents get a better deal).

- As a property investor, I'm happy to control for the cash I sink into my investments in interest versus the returns I get from rental revenue. Combining that with exchange rates and US interest rates versus Canadian, I <3 Canada.

- Fully variable interest mortgages are for suckers (and in that regard, I do have some regrets).

(bias: I <3 Canada regardless -- I'd live in Whistler, BC if circumstances allowed)

>>but_ it extends the mortgage for a 30 years

How come? Here in UK you just remortgage for the remaining term of your mortgage, if you have 14 years left you just remortgage for 14 years. Is that something that you have to to do in America, or just what most people choose to do?

In the US lenders generally only offer a few options for the lengths of fixed rate mortgages, with 15 and 30 years probably being the most common.

There is generally no prepayment penalty here, so if you want some length that isn't one of the standard ones you can just get a longer one and then pay some extra principle each month to pay it off over the timeframe you wanted.

It is amazing how much less time it takes to pay off a 30 year mortgage if you increase the payments 10%. The first good many years are paying mostly just the interest.

In this case you would likely do a 15 year term loan. The previous comment is misleading or incorrect in stating that you have to do a new 30 year loan always when refinancing.

When I refinanced they let me pick a term of a 27 years, of course it was at the 30 year rate. There is no advantage to doing this versus just automatically overpaying the mortgage every month to tune in the target payoff date.

A 15-year loan is a standard term, with rates that are usually different from a 30-year.

When you refinance, it’s just a new mortgage. You can do it purely for rate, or you can do a cash out refi (refinance at market rate for your house, pocket the equity you’ve built up as cash, but now your loan is bigger). The loan terms are like a regular mortgage, because they basically are. The originator of the mortgage often sells it on the secondary market.

Well yes, obviously - it's the same here. I just read what OP said as a requirement that you have to extend your mortgage by another 30 years. Here you just get a now mortgage of any length you want - if you fancy 9 years or 12 or 38 that's fine.

Extending isn't the right word. You're applying for a completely new one, often with a different bank. The common options are 15 year and 30 year terms. The new one pays off the old one and if it's structured you can even get extra cash out, though that may increase your interest rate.

These 30 year terms and favorable terms like no prepayment penalty or balloon payments are a result of government regulations and subsidies that were created after the Great Depression in the 1930s and were designed to 1.) prevent people from losing homes when interest rates increase, 2.) encourage homeownership by making mortgages easier and more rational for buyers.

There are other government regulations and subsidies that encourages and compensates lenders for participating in this market. The government gives access to low interest loans through the federal reserve banking system, created private entities (such as Freddie Mae) that purchase conforming mortgage back securities and requires buyers to pay for loan default insurance until they have a specific amount of equity in the home (which compensates the lender in the event of a foreclosure).

These policies and subsidies are the only reason this market exists and is able to be so highly beneficial for buyers and allow for such a long-term risk taking.

No, this poster is not correct. You CAN refinance for another 30-year note, or a 15-year note, or a 10-year note, or whatever the bank will let you refinance for and you're willing to sign up for.

All you're doing is taking out another loan and using that loan to pay off the original loan. So whatever terms you can get from the bank are fair game.

Also, there's nothing stopping you from paying the loan off early.

Refinancing has a significant cost though. The various fees and transaction costs add up to $10-20k+ in my experience. Is not at all free, unless the savings from the difference in interest rate exceeds the transaction cost.

Interesting. Here in UK there are usually literally no costs to remortgaging, we've remortgaged couple years ago and only cost was paying £500 for a solicitor to look throught he paperwork(which we convinced the bank to pay for in the end, so it cost us nothing overall).

A refi over here is treated cost-wise exactly like taking out a new mortgage, which you then use to pay off the first mortgage.

Same here. There are no fees(usually) for taking a new mortgage either. A bank might charge you something for making the transfer, but it's like £50, completely insignificant.

> As an American, Canadians are insane for buying into this system.

In theory, there’s nothing wrong with some/tons of uncertainty, as long as people don’t play along and don’t overpay while hoping for the best. Buuuuut people are stupid and do just that.

As an American, Canadians are insane for buying into this system.

As a European, the US mortgage system combined with very generous tax-deductible interest rules, is probably one of the most generous and property owner friendly system around. As a property (and mortgage) owner myself, I'm very envious of it.

That being said, had I been a renter in the US I would probably be very upset about how much tax payer money is going to support home owners.

    very generous tax-deductible interest rules

There is a lot of economic research around the second order impact of these tax deductions. Do they, in fact, increase the cost of homes? There is _some_ evidence that says yes, so the tax deduction is offset by higher purchase price.

The standard deduction is now taken close to 90% of the time in the US. Most people no longer benefit from the mortgage interest on their taxes.

The standard deduction has been significantly increased in the US recently. Mortgage interest is often not worth itemizing unless you're in a high cost of living area or have a big house elsewhere.

Yes, you can refinance any time with nearly no cost. During covid years, a lot of homeowners refinanced multiple times, each time with a small bonus (under 3K) for refinancing.

What people don't understand though is interest payments are front-loaded. Most of the early payments will be almost all interest, and with frequent refinances most of them are paying interest all time time, extending mortgage by a few years. Most only think of cash flow and the payments appear lower, if you don't think about those extra years.

https://thepillmethod.com/help-us-celebrate-the-80th-anniver...

you can just pay off the loan faster and put whatever interest cut you got towards the principal?

If you're fixed at 2 or 3%, why bother?

You can make a better return putting your money elsewhere.

a common mantra, but almost nobody actually does it

Also, the return is guaranteed in the case of mortgage repayment.

The returns from investment are estimated based on historical performance. You can lose money investing, not so paying off a mortgage early.

At the very least, during periods when interest rates are significantly above your mortgage rate, such as now, you should put it in a money market account instead of in your mortgage. It's the same amount of risk, but it's liquid. Really, you could do a long term Treasury bond for the same reasoning (same risk, same liquidity).

   you can just pay off the loan faster

In the US mortgage market, this is called curtailment. For example, if you make one extra payment per year, you will shorten a 30 year fixed rate mortgage by about 4.5 years. Also, for most US mortgages, you are allowed to prepay 100% with no penalty. This allows for refinancing.

What I do not understand: Why don't more countries do this? Have large gov't financing companies that guarantee certain fixed rate mortgages? Overall, it is a huge win for the middle class home owner in the US.

>For example, if you make one extra payment per year, you will shorten a 30 year fixed rate mortgage by about 4.5 years.

This doesn't sound right. If I make 5 extra payments (either in 1 year or over 4 years), the mortgage will be shortened by 5 x 4.5 years = 22 years. I'm sure everyone would do this, 5 extra payments is super easy!

You misunderstood my original post. One extra payment per years means 13 mortgage payments, instead of 12. (Almost all US mortgages require monthly payments.) To be clear: This extra payment is strictly optional, but it used to demonstrate how curtailment can meaningfully reduce the life of your loan and the amount of interest paid.

> What people don't understand though is interest payments are front-loaded.

This is completely wrong. In the U.S. at least, interest is calculated based on the remaining balance.

It is not "front loaded" at all. It's just that your balance is highest at the start of the term.

A borrower can pay down extra principal at any time if they so choose and interest (absolute, not rate) will go down the next month.

Fixed rate is really common in Europe, definitely not a US thing.

I naively thought that if mortgage rates are 8% then I ought to be able to invest in a mortgage backed security for an 8% annual return. It turns out that, in the process of creating the mortgage backed securities, various entities take fees and the portion of the mortgage that goes to the investor can be several percent less than the interest rate that the homeowner pays.

Some people have variable rate mortgages, are you sure you want to invest in such securities?!

Rates just reached 8%. Where do you think all the securitized 8% mortgages come from? People actually have to lock that rate and close. Then securitization can happen, and of course during that process there will be fees taken out. If you want 8%, become a direct lender.

Why buy an MBS when you can buy a mortgage pool from Fannie or Freddie directly? The fees are lower, but you own the full mortgage -- and the full risk of default from borrowers. MBS is better for Alt-A and below credit scores, where you want to protect yourself against losses.

Link to where you would do this?

Mortgage pools are only for institutions and/or very wealthy (private banked) individuals. If you are already private banked, ask your rep.

Well, then I guess you have your answer to this:

> Why buy an MBS when you can buy a mortgage pool from Fannie or Freddie directly?

What? This must be a troll, right?

You figured because a homeowner is paying 8% that 100% of that revenue would come to you? No servicing fees. No accounting. No overhead. Zero defaults.

Stop making it out to be nefarious. It's not in the process of "making a mortgage backed security". It's in the process of servicing a mortgage.

So people near me just put their house on the market... in October... with 8% mortgage rates.... I have no idea what they are thinking. I know they aren't putting it on the market because of financial or health or family reasons. I just boggles my mind.

Home prices haven't fallen much yet, despite the massive surge in interest rates, so if they can cash-out now why not?

Sell now, rent for a while, watch the market crash, jump back in when prices and/or rates fall?

Or more likely, rates eventually find their way back down and home prices sky rocket with all the freshly available buying power creating endless bidding wars.

Yeah, because fed is stupid about inflation. That'll just mean higher rates for longer.

I mean, isn't it? Try as I might, I've yet to find any explanation about what theory of money they operate on. I've began to suspect the issue isn't a poor ability to research on my part.

The US is in for hyperinflation then

Fannie Mae and Freddie Mac restrict the maximum amount of the conforming loans which could help limit prices going to the moon. However, popular pressure will be applied for them to increase the limits (or "they're hurting 'poor' people who don't own a home".

Also about 40-percent of homes in America have no mortgage on them. If you own one of these homes (and never took out a second mortgage) selling it and moving to a house of similar value is not really effected by interest rates.

This is way more the case for older people, but still possible.

You tend to achieve less value if interest rates are high, as the buyer will typically need a mortgage, and the pool of prospective buyers decreases as borrowing costs rise, and supply and demand does the rest.

But in that example a person is selling one house to buy another (presumably a cheaper/smaller one). Market conditions will even out.

> to achieve less value if interest rates are high

it could be more value compared to the future when interest rates may be even higher

Take the cash from sale and do a modest home increase or even a decrease. Less to finance.

> Sell now, rent for a while, watch the market crash, jump back in when prices and/or rates fall?

A 1031 exchange is a good reason to not do that.

https://www.investopedia.com/financial-edge/0110/10-things-t...

Only if your appreciation is more than 250/500k

1031 is for investment properties, not primary residences. That also makes 1031 not an option if your alternative is to sell, rent then jump back in later. That seems to imply it's your primary you'd be selling.

$500k in tax-free profit for a married couple goes a very long way without needing to pull a 1031.

House prices are unlikely to crash ever because there's hundreds of billions in private capital waiting to buy up any cheap housing stock as long term rental properties. As soon as there's any dip the demand goes up which pushes prices back up.

That's all financed and even more sensitive to the rate increases than buyers who want to live there

Nahh…

The largest residential real estate funds are in the tens of billions. The value of US residential real estate is $47,000 billion. $100B in private investment is a drop in the bucket.

And investors aren’t stupid. They want high returns and if they think real estate is going down, they’ll drop it like a hot potato.

What amazes me is the 2008 real estate crash is only 15 years ago. After the crash real estate was radioactive, nobody was interested in buying.

Then a decade later it’s all forgotten and people think “real estate will never go down”.

Apparently it takes about a decade for people to forget everything they learned in 2008.

Real estate went down in 2008 after a bubble created by crappy mortgages. This is not happening again; we have a supply crunch.

Famous last words.

Well it could be 10% on 2 years or less?

This is very true! 8% is not that high historically: https://money.usnews.com/loans/mortgages/articles/historical...

It's the past several years that were the anomaly. There's a legitimate chance we don't see rates like we did in 2021 again for decades.

People buy houses with cash is what they’re thinking.

My parental units literally just sold their house to a cash buyer... so yep, exactly this.

Final sale was over a million dollars by the way. Where people come up with that kind of cash is beyond me, but they're coming up with it one way or another.

> Where people come up with that kind of cash is beyond me, but they're coming up with it one way or another.

A "cash buyer" just means that the buyer didn't open a new mortgage to close the sale. Cash buyers often bring in cash from other interest-accruing loans -- such as HELOCs or portfolio loans. Foreigners or irregular income earners are a couple examples of people who might not qualify for a conventional mortgage and would need to tap into alternative loans to buy a house and thereby become a "cash buyer". Cash offers are also considered more competitive (they close faster), so someone might make a cash offer (via other loans) just to make their offer have a higher chance of succeeding.

Ah, that's interesting! And makes sense.

https://www.bankrate.com/real-estate/capital-gains-tax-on-re...

"For the 2023 tax year, you are not subject to capital gains taxes if your taxable income is $44,625 or less ($89,250 if married and filing jointly). If it’s $44,626–$492,300 as a single filer, or $89,251–$553,850 if married and filing jointly, you would pay 15 percent on the $250,000 profit. Above those top amounts, the capital gains rate would be 20 percent."

How is that relevant?

People selling their house can take advantage of the tax break. OP was curious about why they'd sell and that could be a reason. Now give me back my downvote please. ;-)

What tax break? I think you just quoted the capital gains tax rates[1]. That's a tax, not a tax break. Those rates apply to all capital gains, not just houses. They're basically the same every year. The numbers increase each year for inflation.

There actually is a tax break, the paragraph after what you quoted. But I don't think that's new or ending soon. So that's also not something that would trigger people to sell now rather than in a year from now.

[1] https://www.bankrate.com/investing/long-term-capital-gains-t...

People change jobs, have kids, get separated, retire, die. There’s always people who need to sell for one reason or another.

As rates go higher I suspect a high percentage of homes that will only move due to people dying off.

Much stagnation

It will start with the new houses... The builders have to sell, so new house prices will drop first. Then when existing home owners see the prices of new houses dropping, they will rush onto the market and try and get out before everyone else does.

People need to consider however, if they sell, they also need to take into account the mortgage rate they will be able to obtain. They may be on a significantly lower interest rate than they can obtain now, so even if houses prices drop, they may not end up in a better financial position.

If you look at a graph of interest rates that goes back more than 50 years you'll see that the recent period of very low rates is an abhoration. It was weird. It hasn't happened before. 8% is a return to normal (still a little low if anything). Refusing to sell because you believe rates will drop is just making your life more difficult because it almost certainly won't happen.

> because it almost certainly won't happen.

A return to zirp in the short-term most likely won't happen.

But the world simply cannot afford higher rates. The Fed is pausing, in will likely cut next year.

    The Fed is pausing

They are likely to raise rates (25bps) at the next meeting. Economic indicators continue to be very strong, and inflation has not meaningfully reduced.

If you look at a graph of interest rates there is a centuries long trend of declining interest rates. The current interest rate hike is the "abhoration".

Yeah but prices are still at very low interest rate levels and not at 8% interest rate level

There's a much bigger aberration in a graph out there though. The M2 money supply. During covid it expanded at an unprecedented rate. It's currently declining. The latter hasn't happened since the Fed started publishing records of it.

Worse still, the last historical precedent for such a decline I could find is the 1929 depression.

In the USA, presumably, although they never say it outright.

You could equally criticize BBC for talking about the UK implicitly, or NHK for talking about Japan.

Ok?

CNBC can have their own US default context if they want. I guess if you think this needs context, the US part should be mentioned on Hacker news, since here we moved the headline out of its original context.

it’s strange to me how little attention this is really getting. you’d think politicians would run on solving the housing affordability crisis when half the country is having their life ruined by it.

It will take years to bring supply online. There is no short term fix to build millions of housing units. Also, solving housing affordability drives down real estate prices. Not great as a politician depending on your constituency.

The United States builds millions of new homes every month. To increase that rate by 50% or 100% would not be so difficult.

It's more like 100k-200k homes completed per month: https://fred.stlouisfed.org/series/COMPUTNSA

Additional citations: https://www.axios.com/2023/06/20/housing-shortage-prices-hig...

https://www.freddiemac.com/research/insight/20210507-housing...

> As of the fourth quarter of 2020, the U.S. had a housing supply deficit of 3.8 million units. These 3.8 million units are needed to not only meet the demand from the growing number of households but also to maintain a target vacancy rate of 13%. Between 2018 and 2020, the housing stock deficit increased by approximately 52% (See Appendix 1 for detailed calculations of the Housing Supply Deficit).

They could at least abolish zoning on national lvl, or releax it + abolish parking requirements

> They could at least abolish zoning on national lvl, or releax it + abolish parking requirements

No, no court is going to buy a federal anti-zoning law as within Congress’s Commerce Clause powers.

> Also, solving housing affordability drives down real estate prices

Solving housing affordability drives down average per unit real estate prices, obviously, but its likely to increase both land prices and as-improved prices on existing detached single-family residential units.

Young people don't vote. Young people are the ones effected by this since owners locked in low rates during the pandemic. Politicians don't pander to non voters.

Almost all of the proposals to fix the hosuing affordability crisis would piss off NIMBY homeowners who vote so they're not talked about.

Wow thats so low. Here we have 9% and its the „good” offer.

Soon Ill be working only to pay off interest.

The system we have is amazing and totally does not exploit honestly working ppl.

That's really bad. I refinanced last month to a 3.7% fixed 20-year because the fixed rate here is currently lower than base variable rate (6-month Euribor at 4.1%, which would mean about 5.5% effective rate after the bank markup).

Yesterday my friend bid on a house for $3.7M. There were double digit number of bidders. Lost to another buyer who got it for $3.8M all cash. Not saying it is the same everywhere, but where I live it is the norm. Nothing seems to bring down (or even slow) house prices.

At that price level, it’s a whole different market and set of buyers. If that's in California, the property taxes alone would be like $3400 a month. I doubt people with that kind of money are troubled by variations on interest rates.

Yeah so property prices will go down as a result but considering most people in the west cant afford buying without a mortgage it will still be expensive for the average joe.

So this is good news for cash buyers, who will make a killing once rates drop, and bad news for wage workers.

It is egregious that capital gains taxes (including real estate), are based on the nominal value, which means that owners (sellers) of capital pay taxes on inflation. The nominal value goes up, the relative real value is unchanged, but taxes are due.

Even if they accounted for inflation in the tax computation, it would still be wack. The official inflation number is severely understated (exludes food, energy, and housing).

It is egregious that capital gains are taxed at less than half the rate normal income is for even moderate middle class earners.

8% return in fixed income markets will certainly do a number on stock markets

up and down and down and up and up and down and

Why are mortgage rates still going up when inflation is coming back down?

probably inflation is still high compared to some benchmark used by fed.

You can have zero inflation but high time-value of capital.

Fed hasn't started buying bonds or lowering overnight rate

The fed can say whatever it wants but I can go to the grocery store and show you inflation is still increasing. Pretty much all consumer stuff is still going up, despite how much the fed wants to have it not be true.

The Fed says prices are still increasing, so what is this "the fed wants to have it not be true"? Have you actually listened to or read what Powell has said?

If people believe that the Fed will drop the rate back to nothing at some date close to the future, then investors will behave as though the interest rates aren't increasing, even if they are. In that case, it won't impact inflation. The Fed has to make the rate increase "real", so they must keep increasing the rate and/or keeping it at high levels.

It's truly pathetic how Congress and the media are giving the Biden administration a free pass on refusing to acknowledge that the endless interest-rate hikes AREN'T WORKING.

The old models aren't holding up today, because the problem isn't money supply. It's monopoly and oligopoly. We have four meat suppliers, who are now making record profits after whining about a "labor shortage."

We have a national crisis after ONE baby-formula factory is shut down for health-code violations.

We have what, three suppliers of high-speed Internet, and we're way behind the rest of the civilized worled.

And on and on. This "inflation" is straight-up ripping off of the public by huge corporations, abetted by our "representatives."

> It's truly pathetic how Congress and the media are giving the Biden administration a free pass on refusing to acknowledge that the endless interest-rate hikes AREN'T WORKING.

The President doesn’t control interest rates, the Federal Reserve does. And the President does not control the Federal Reserve. The President nominates the board of governors and the Senate confirms them.

The current Federal Reserve chair is actually a Republican first nominated by Trump and then nominated for a second term by Biden (in fact, against pressure from the more left-leaning Democrats like AOC and Warren).

Laying the interest rate hikes solely at the Biden administration’s feet expresses a lack of understanding about how the Federal Reserve and interest rates work in the US.

There’s plenty of blame to go around here.

Edit: here’s a link to the vote for the current chair’s renomination (https://www.senate.gov/legislative/LIS/roll_call_votes/vote1...)

I think it’s interesting because you see as diverse a group as Cruz, Hawley, Rubio, Sanders, and Warren voting together (nays) against the overwhelming majority of yeas (80 to 19 with 1 senator abstaining).

As Truman once said, “The buck stops somewhere else. Probably with the other party. You just don’t understand how these things work.”

You’re in good company misinterpreting Truman’s famous desk sign:

https://nymag.com/intelligencer/2012/10/buck-stops-here-clin...

Or directly from Truman’s library:

“In his farewell address to the American people given in January 1953, President Truman referred to this concept very specifically in asserting that, "The President--whoever he is--has to decide. He can't pass the buck to anybody. No one else can do the deciding for him. That's his job.”

Funny enough, Trump gave his own version of the phrase around the looming 2019 shutdown with “the buck stops with everyone”.

I'm not laying interest-rate hikes on the administration. I'm blaming them for neglecting to take sufficient action against monopolies, and their failure to communicate with the public on the issue.

Apparently their "strategy" is to sit back and let the Fed flail, instead of admitting that it's not working and proposing another approach.

The president doesn't have the power to pass laws, so I don't understand how Biden is supposed to adresss any of these issues in your mind.

Who said anything about passing laws? We HAVE antitrust laws, which are not being enforced adequately. This administration (and previous administrations) should have made their enforcement a priority, using whatever means they have at their disposal.

Do you think the president should just ignore anything he can't personally dictate? That's a pretty helpless and hopeless point of view.

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