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Comment by drewg123 | Hacker News Reader

I really hate the title of that article. Of COURSE rate and price drops would improve affordability. What they are trying to says is that forecasted rate and price drops won't help.

And I tend to wonder if they are correct in terms of price drops, at least in some markets. We seem to be gradually falling off the peak of the market in Miami/Ft. Lauderdale. Between people being pessamistic about the economy, RTO to jobs in the northeast, and foreign nationals leaving the country, demand is decreasing and so prices are dropping. They seem to be slowly heading for historical averages after peaks in 2022, and houses that don't drop their price from 2022-24 peaks are not selling. It feels very much like 2008 right now, and I'm really hoping we see some improvement in the next few years.

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Rate drops will make affordability worse, you do understand that less interest just means more principal, right?

If a mortgage payment is $1800 of interest and $700 of principal at 7%, a buyer is in the same position if rates go down to 3% and the payment is $1400 in interest and $1100 of principal (numbers are made up, I don’t have time to calculate the exact values). In the 2nd case, the home price would be higher and the lower rate would mean reduced financing costs, with the same TCO in the end.

Bonds work the same way, as the yield goes up above what the bond was issued at, the face value of the bond decreases, only the housing market has limited supply so prices didn’t go down when rates went up.

If yields go down, the face value of the bond goes up, just like with houses.

The only thing that will lower housing values is more supply.

For a fixed loan term and fixed price, less interest means lower payments. (But of course if you assume that prices will do whatever you want them to, then you can prove anything you want.)

Bonds do not work like houses. Typically bonds pay out a fixed coupon rate and then 100 at the end of the term (fingers crossed).

Fixed loan term and fixed principal, yes.

Grandparent is alleging that in a lower-rate environment sellers will raise prices until buyers' monthly payments are about the same as they are in this high-rate environment.

Agreed, sure, alleging.

> alleging that in a lower-rate environment sellers will raise prices

Didn't we see exactly this scenario play out in 2001-2005 and again during Covid?

> Heading into 2020, affordability was increasing—even in the face of rising home prices—as buyers benefitted from historically low interest rates and steady income growth.

> The national HOAM index fell from 101.94 in February 2021 to 98.22 in March 2021, indicating homes were no longer affordable for the median-income household.

Rates dropped which caused a demand-side surge (because more people could afford the mortgage) which quickly turned into a market dynamic that caused home prices to increase beyond median affordability.

https://www.atlantafed.org/economy-matters/community-and-eco...

I'm afraid this discussion is in danger of sinking from finance into economics. Sure, what you describe is one thing that happens. Interest rates affect demand. Demand affects price. If you pick your data, you can find times when that mechanism appears to dominate and the model fits perfectly for a while. But in general it's simply not the case that interest rates, alone, determine house prices.

I think the point was that dropping interest rates alone will not make anything more affordable. It will actually have the opposite effect: increase prices without any material change to the underlying property value. Fueled purely by the demand of newly-qualified buyers.

Yeah, that is the point. But it isn't necessarily correct. It's an idea. Sometimes it's true.

Less interest means that buyers can ask for a higher price for their home and the buyer will have the same mortgage payment as they would with a lower priced home and a higher mortgage rate.

The buyer is paying the same TCO in the end so they’ll accept the higher ask from the sellers due to limited supply and the TCO being equal. The Fed is about to start cutting rates so you can watch this happen in real time over the next few years.

Bonds work that way if you hold them to maturity, but the face value is continuously being repriced as rates fluctuate. You don’t have to sell, but that’s how bond pricing works.

Agreed, anybody can ask for more money.

Traditionally the face value of bonds is fixed. The sale price is continuously repriced as rates fluctuate.

Much love to whoever downvoted this absolutely drab and incontrovertible comment. Stand up for what HN means to you.

Home prices will absolutely go up when interest rates go down. You are being downvoted because you are wrong. I am willing to place a sizable bet on that if you believe you’re correct and think I am incorrect.

You don't seem to be reading my comment.

Of course lower interest rates tend to push prices up, everything else being equal. The claim was that prices will rise so fast that buyers will be worse off with lower interest rates. That's not necessarily true. It might be true. Sometimes it's true.

I'm honestly a little tired of answering objections from infallible people who haven't quite read the thread or don't quite know what they're talking about.

That's what the substantially is there for - yes, it would technically help but few can afford payments on a $1.2m SF home even if money were free

Who is buying a home in SF? Can we come down to Earth?

It's just an example - most people live in major metros where the jobs are and those are the places the rate drops just wouldn't help much. What you said kind of makes my point of how jacked up the market is due to homeowners having done their best to slow production as much as possible, and our emphasis on housing as investment. It didn't have to turn out this bad.

If it's meant to be an example, then it's wildly cherry-picked. Very few of the nation's homeowners live in NYC or SF. Even fewer home buyers are serious about those markets. The exceptions are often in co-ops where down payment %s are much larger. It is not accurate, it's not even rational, to use those markets as reference points for a national discussion.

Of course it is. If jobs are in major metros but it's impossible to buy there and hard to rent even as a tech worker - what does that mean for the city (and all the people that are locked out of opportunity)? A study from Hsieh and Moretti estimated that looser zoning rules in elite cities could increase GDP growth by a third. Everyone's looking to AI for productivity gains but this is major money on the floor that, while getting more discussion at present, is not part of a national policy, to everyone's detriment.

Sure. I dig. Affordable would be better.

I'm a little tired of conflating "major metro area" with SF and Manhattan, but I dig. I'd love to own a home in either of those places. It's a surreal thought but very appealing.

Doesn't Florida have an insurability problem that's becoming a crisis?

At the end of the day, I'm guessing that most people price housing as mortgage + insurance. If insurance costs go up, the price of the underlying property has to go down in order to meet a monthly payment target. So some of that is probably already going on.

Yes. Florida has the highest insurance costs in the US. Many are going without insurance if they don’t have a mortgage that will force placement of insurance.

> Florida currently has the most expensive insurance premiums in the nation. According to data by Insurify, a national insurance data collection group, Florida's projected cost of property insurance averages about $11,000 a year.

> ValuePenguin’s study shows Florida’s property insurance has increased 72% in the last five years, with the number of homeowners who can’t get coverage through private insurers going up 400%.

The US is currently spending ~$1T/year on climate costs.

https://www.cfpublic.org/housing-homelessness/2025-01-10/cen...

https://www.newsweek.com/map-reveals-scale-florida-property-...

https://www.bloomberg.com/news/articles/2025-06-17/us-spendi... | https://archive.today/EBmaI

https://www.theguardian.com/environment/2023/oct/09/climate-...

> most people price housing as mortgage + insurance

I would go as far as to say it's actually mortgage + insurance + taxes in most states. Very likely to be paying anywhere from $5,000 to $10,000 in county + school taxes per year which by itself is enough to make the home suddenly unaffordable even if you bought it 10 years ago at a great price and rate.

+ HOA fee (condo HOA fees can easily add up to several hundred $$ per month)

Yep my taxes and insurance escrow payments are a larger part of my total monthly payment than the loan is.

You also need to include property taxes.

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