Comment by iamnothere | Hacker News Reader

Comment by iamnothere | Hacker News Reader

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Higher rates means financing/borrowing is more expensive. Mortgage rates will go up, possibly pushing home prices down. This is neutral for buyers because of higher rates, but bad for sellers. Loans (personal or business) will be harder to come by. Layoffs, or at least hiring freezes, are more likely. Companies will move into a defensive rather than an growth mode. Higher unemployment will lead to more desperation, and possibly consumer defaults on loans and mortgages.

Government interest payments, which are already high, will become higher after future bond sales. This will compound future budgetary problems and could eventually lead to cuts in entitlements. If so, expect crime and political instability (already a problem) to rise in the future. This will take a while, though.

Normally rates are increased to lower inflation by reducing the supply of money. Given the multiple concurrent problems with energy (Hormuz, Red Sea/Yanbu, Russia/Ukraine, possibly Libya as problems are starting there, China is buying aggressively) then higher rates may not be enough to stop inflation. This would create a situation where both borrowing is harder and inflation continues to rage. This is very bad and will lead to demand destruction (nobody’s buying anything because it’s too expensive and they can’t finance it anyway). This results in a severe recession at the minimum.

Edit: wow, I really set off a discussion with this. See replies below for clarification on mortgage rates, which is the least important part anyways. Also, I should note that a lot of the above is a worst case scenario, if energy isn’t solved soon and especially if bonds don’t respond to the hike, leading to further hikes.

“Higher rates means financing/borrowing is more expensive. Mortgage rates will go up,…”

This is highly inaccurate. The 10 year US treasury is a better metric for predicting mortgage rates. We saw this during the past interest rate cuts, interest for loans and mortgages still went up, remember? I do, because I was borrowing at the time. And why was that? Because the 10-year treasury continued going up, and that matters more than short term interest rates. The 10-year treasury is about expectations about the future, so we need to look at how the market responds before screaming mortgage rates will go up, they could actually go down.

Variable rate (loans) track the Fed rate. Fixed rate (loans) track the long term treasury yields.

I didn’t say it was the best metric, but they trend in the same direction over time.

The 10 year and fed rates are usually correlated. Occasionally rates spike or dip without moving the 10 year, but these events are brief. This could be a short spike, but only time will tell.

Home prices are sticky on the way down, 25 basis points won't change much

Supply is way up and sales are way down, on average: https://wolfstreet.com/2026/09/10/sales-of-existing-single-f...

This could be the catalyst to lower prices if sellers get spooked, especially if gas prices keep going up.

Your graph shows that home sales have been at a constant rate for the last 3 years. They are way down from 2020-2021, when covid plus low interest rates caused a home buying frenzy, but this is not new. We've been in this regime for the last 4ish years, 25 basis points is not going to change anything. In fact, interest rates are lower now than they were a year ago.

That's not to say that rising rates aren't a sign of bad things, the definitely are, it's just not going to make much of an impact with this magnitude of change.

https://fred.stlouisfed.org/series/fedfunds

Sales have remained low (at GFC levels) while inventory has continued to climb. In other words supply is up and demand is flat. Doesn’t look good to me, but I’m not a professional market analyst.

It all depends on how long buyers (in aggregate) are willing to hold out, or if they are simply unable to buy at these prices. And nobody really knows that.

Mortgage rates are not decided by the fed rate as much as they are by the bond yields. There’s a reason why the mortgage rates were above 7% yesterday even when the fed rate has been stable for a while.

This rate hike is aimed to stabilize the bond yields which in turn will lower the mortgage rates.

But bond yields are based on a market.

If interest rates go up, bonds get sold (for better yield bearing products), pushing the yields of those bonds higher. And it finds some equilibrium. The fact it isn't immediate has to do with short term vs long term bonds. When they mature and the pace of arbitrage.

I don't see how a rate hike is meant to lower mortgage rate. And just looking at the figures shows it's the opposite effect.

Logically, if borrowing money becomes more expensive, how could borrowing specifically for the purpose of buying houses become cheaper.

You have to look at the current context. Bond yields have been spiking, mostly because of the inflation expectations from oil prices and tariffs (mostly oil prices). Mortgages mostly track 10 year yields, which is why when fed dropped the rates back to back, the mortgage rates didn’t come down. The current hike (and the next one) is supposed to create a deflationary pressure, but also provide confidence to the market that the fed will step in to cool inflation if necessary. This in turn lowers the yield on 10 year treasuries and therefore mortgage rates.

The fed rate provides a floor for mortgage rates, but the 10 year yield and mortgage demand decide the ceiling. Currently the demand is pretty low, and therefore the yield mostly controls the mortgage rates.

what I'm saying is that Fed hikes interest rates → bonds sell off → yields rise → mortgage rates rise.

This is logical and empirically observed.

But you are right on the longer term effect. Zooming out: Fed hikes → inflation cools → inflation expectations fall → yields fall → mortgage rates fall.

But the latter is not guaranteed, and it takes time.

I'm unsure to understand how the ceiling and floor mechanisms work. But will dig into that. Thanks.

> Fed hikes interest rates → bonds sell off → yields rise

This part isn’t true. It can happen, but not always, especially right now.

So far you are right, yields are falling since yesterday.

It seems like this would depend on the bond market’s perception of whether or not this hike is the start of a trend. It could be seen as a signal that political attempts to lower rates have been unsuccessful.

Neutral for buyers? Absolutely not.

As a buyer you rather want to take out a loan in a high interest rate environment than a low interest rate environment, given that the monthly payment is the same.

1000 usd extra paid towards your mortgage actually makes a difference when the rate is 15% compared to when it is 1.5%

There's also "date the rate, marry the price". If you're a buyer and think that rates are going to come down within a couple of years, you can lock in the lower price of your home for property tax purposes and then refinance when rates are lower.

But a lot of people bought in 2024 expecting that to happen.

This really doesn’t make sense.

Higher interest rates mean the monthly payment is higher. You need to pay back the principal + the interest.

He assumed that the payment is the same meaning the principal for the same house went down and so this is neutral. If your payment is the same it doesn't matter what is principal vs interest. In the best cases rates go down in the future and then you refinance and your payment goes way down.

House prices tend to be "sticky", so that assumption is probably wrong. People who own a house often cannot afford to sell for the current value since it won't pay off their loan and leave enough money left over for a replacement house so they avoid moving. Eventually things get bad enough that they "sell short", but that takes a credit hit so you don't want to do that until the loss is large (and in turn you gain more).

Maybe the mortgage system is different in the US.

But if you have a 25 year term on a loan for a $500,000

Approx numbers:

5%: $2922 monthly, total paid: $876,885

10%: $4543 monthly, total paid: $1,353,000.

Yes, so the 500k is not fixed - that should be obvious from these calculations.

You didn't do the same math.

Given a $1500 monthly payment and a 30 year loan (30 year is most common in the US), at 5% loan is $279,400; at 10% the loan is for 170,900.

How is 10% less than 5% ?

Only if you expect rates to come down in the future. If the monthly payment is the same, I guess you have a slightly bigger mortgage interest deduction for tax purposes, but you’re still paying the same amount each month.

If you expect rates to come down soon, you can plan to refinance in the future, but that’s a gamble. Rates may not go down, or the value of the house could go down before you refinance, which may make refinancing more expensive depending on how much you owe.

No?

Paying down a high interest mortgage will always have bigger impact on the dollar than paying down a low interest mortgage.

If you’re paying the same amount monthly, your cash flow is the same. Are we not comparing apples to apples here? I mean a traditional fixed mortgage.

I’m comparing a mortgage with a high rate and lower principal to one with a lower rate and high principal, where the minimum monthly payments are the same and the owner pays the minimum.

A high interest mortgage just means that you pay more total interest over the life of the mortgage. In any case traditional mortgages are front-loaded, so you pay more towards interest up front than you do principal.

I said that the monthly payment is the same. Not that you pay the same amount towards your loan.

An optional extra payment is worth more when interest rates are higher.

Ie. An optional extra payment of 1000$ will pay your 150$ a year in saved interest when the rate is 15% and only 15$ when the rate is 1.5%.

Everything else being equal, optional payments has a higher value, which represent value to the buyer.

This is true, but I was not assuming extra payments and I don’t know where you got that assumption from. Many people can’t afford to make extra payments given the already high cost of housing and the rising cost of everything else.

My initial complaint was merely that the interest rate it not neutral to buyers.

I guess I was just referring to average buyers, who don’t often pay extra.

The question is what will rates do in the future. If rates go down you refinance, if they go up even more you hold your rates. Either way so you are fine long term, but it can be 10 years before it pays off.

Note that the US mostly does fixed rate for life of the loan. Many countries only have ARM (adjustable rates), and those exist in the US as well. If you have an ARM that changes things greatly.

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