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Comment by irrational | Hacker News Reader

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.

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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?

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

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".

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.

> 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...

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

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.

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

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.

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...

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.

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.

> 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

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.

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