Interest rates

[Anonymous]

I bought for 1.9M this past July. I may be able to sell now and get 2.1M even with higher rates due the the inventory shortage.

[Anonymous]

Anonymous wrote:The first house I bought had a 7.875% interest rate, which was pretty incredible for the time. Rates fluctuate. They will go up and they will go down. If history is any indicator yes, rates will drop at some point. My crystal ball is broken so I can’t predict when that will be. But please don’t buy a house at todays’s rate that you can’t afford at today’s rate.

This. My first house was 6.375%.

[Anonymous]

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Anonymous wrote:Buying a house and sacrificing a really low mortgage rate for the current rates which are so much higher. Any reassurance that the rates should come back down again? Even to 4% or so? Excited about the house but the rate is painful.

Rates are indeed painful right now. Can you you use it to your advantage and offer lower on the house? That’s what we did.

Why would the seller care? I am not understanding what you mean.

- np

NP- Sellers should care because a higher interest rate means the house costs the buyer more than houses that were selling at comparable prices a year ago. Sellers are looking at what their neighbors sold homes for when rates were low and prices were high. The buyer is looking at the total cost so could pay more to the seller when interest rebates were low.

None of that makes any sense.

“Interest rebates?”

The price of a home has zero to do with the interest rate on a mortgage. It’s set by supply and demand and what the market will bear.

It’s not like you go, “oh, interest rates are higher and so now cost of ownership is higher so I will pay a lower price.” I mean, you can try that if you are the only one making and offer, but most likely the seller will reject it and hold out for a better one.

"rebates" should have been "rates." Sorry for the typo.

If you have a trust fund or the bank of mom and dad then obviously you're in a different situation. However, the bolded is exactly what buyers with limited resources have to do. This can either mean buyers continue renting or living where they are, or they buy a smaller/older/less desirable house. Sellers care if/when their asking price + interest rate combined is too high for their house to sell. Again, rates are part of the equation.

[Anonymous]

Anonymous wrote:

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Anonymous wrote:Buying a house and sacrificing a really low mortgage rate for the current rates which are so much higher. Any reassurance that the rates should come back down again? Even to 4% or so? Excited about the house but the rate is painful.

Rates are indeed painful right now. Can you you use it to your advantage and offer lower on the house? That’s what we did.

The price of a home has nothing to do with interest rates on a mortgage.

That’s not true — if rates go up enough that buyers can’t afford current prices at current loan rates, prices will have to fall. It’s just that that’s an aggregate phenomenon and not an indicator that you can bid low on the particular house you want to buy. But the basic idea that raising rates will lower home prices is a significant part of the reason the Fed is raising rates.

This is just your intuition. The empirical evidence suggests otherwise. You seem to believe that prices will move down in lockstep with rising rates. But there are many reasons that won't happen. First, incomes increase as well in this scenario (and they have), which also affects affordability. Second, not everyone needs a mortgage. There are a lot of cash buyers out there. Third, even those who need a mortgage get creative to make things more affordable -- 40- and 50-year amoritzations, etc. A wise financial decision? Of course not, but it happens. We see this already in cars -- 7-year loans are increasingly common (again, stupid to take and will certainly create macroeconomic problems down the road, but it's helping cars get sold now). And fourth, people just buy less house.

Housing prices simply are not as elastic as you seem to think they are. But the biggest problem with the mentality you have is that you seem to think a buyer *deserves* a lower price because rates have risen. That simply isn't the case. It doesn't work that way.

It's not my intuition. The chairman of the Fed has specifically said one goal of raising interest rates is to tamp down housing prices. Rising rates lowers demand, because some buyers can't afford the payments at current prices and the new interest rates. Eventually, in the aggregate, that should drive prices down.

The "mentality I have" has nothing to do with it. I bought the house we live in nearly five years ago; its value is up more than 30 percent since then, somewhat absurdly, and I have a 30-year mortgage at less than 3 percent. At any rate, I have no intention of moving or buying another house for at least 15 years.

If anything, I would be better off if, in fact, prices never go down. But just because I'd be better off if doubling mortgage interest rates had no effect on home prices doesn't make it true.