Why don’t people understand that low rates work against them?

[Anonymous]

Anonymous wrote:I share this perspective.

Low rates lead to a higher listing price. You think you have more purchase power because you pay less in monthly interest, but this is offset by the higher principal balance from the higher listing price.

Once rates rise and the monthly interest payment increases, the listing price will go down unless wages and purchase power have increased proportionally to the higher interest rates. If listing prices go down, home values go down. You might have a 30-yr mortgage for a $1.5M home at 3% that suddenly you can't sell at $1.5M because the interest rates on new 30-yr loans is 5%-6%.

"Historically low" interest rates are unsustainable and will eventually revert higher, as we are already seeing. To be clear, this is very different than a market crash.

In other threads, where this concern was raised, I noticed a lot of insulting posts as well. The insults were not very detailed and failed to explain convincingly why this was a dumb concern. I find it interesting. Almost as if there are a lot of people on DCUM who want to vigorously quell suggestions that home values might go down if economic and fiscal policy conditions change.

Because there is no evidence historically that price increases supported by rate decreases revert when rates rise again. There may be some inflationary effects that reduce real prices over the long term, but with respect to actual nominal price declines due to rate increases, no. There is simply no evidence.

[Anonymous]

Interest rates do and don’t matter to me. I own a home free and clear. I am in the market to buy a home with a large down payment, then sell my current home and pay off the new mortgage. So rising rates don’t matter to me because I don’t plan to keep the mortgage. But rising interest rates do matter because if they rise too much, it will affect the resale value of my house. But then again, maybe the house I will buy will be priced lower too. Does it matter or does it not? I have no idea. Maybe I’m not smart enough.

[Anonymous]

Anonymous wrote:Interest rates do and don’t matter to me. I own a home free and clear. I am in the market to buy a home with a large down payment, then sell my current home and pay off the new mortgage. So rising rates don’t matter to me because I don’t plan to keep the mortgage. But rising interest rates do matter because if they rise too much, it will affect the resale value of my house. But then again, maybe the house I will buy will be priced lower too. Does it matter or does it not? I have no idea. Maybe I’m not smart enough.

It matters for the portion that you’re not trading in. So, if your current home, now, costs $800 and the one you want to buy cost $1000, then the $200 difference is more expensive than it would otherwise be with a higher rate. If prices go down, you may not even have to trade in the first home, but be able to have two homes: one that is paid off and can become income producing, and the other bigger one.

These are people specific scenarios, and the point is more general: lower rates aren’t your friend. They’re a foe.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I share this perspective.

Low rates lead to a higher listing price. You think you have more purchase power because you pay less in monthly interest, but this is offset by the higher principal balance from the higher listing price.

Once rates rise and the monthly interest payment increases, the listing price will go down unless wages and purchase power have increased proportionally to the higher interest rates. If listing prices go down, home values go down. You might have a 30-yr mortgage for a $1.5M home at 3% that suddenly you can't sell at $1.5M because the interest rates on new 30-yr loans is 5%-6%.

"Historically low" interest rates are unsustainable and will eventually revert higher, as we are already seeing. To be clear, this is very different than a market crash.

In other threads, where this concern was raised, I noticed a lot of insulting posts as well. The insults were not very detailed and failed to explain convincingly why this was a dumb concern. I find it interesting. Almost as if there are a lot of people on DCUM who want to vigorously quell suggestions that home values might go down if economic and fiscal policy conditions change.

Because there is no evidence historically that price increases supported by rate decreases revert when rates rise again. There may be some inflationary effects that reduce real prices over the long term, but with respect to actual nominal price declines due to rate increases, no. There is simply no evidence.

Have rates ever been so low? Do you need historical evidence to acknowledge that if rates double, people are going to struggle with an extra $500 per month in interest payments?

[Anonymous]

30-year mortgage for $700k at 3% is a monthly payment of more than $2900.

30-year mortgage for $700k at 5% is a monthly payment of more than $3700.

If you don't think that will affect purchasing power, you're nuts.

[Anonymous]

Anonymous wrote:I share this perspective.

Low rates lead to a higher listing price. You think you have more purchase power because you pay less in monthly interest, but this is offset by the higher principal balance from the higher listing price.

Once rates rise and the monthly interest payment increases, the listing price will go down unless wages and purchase power have increased proportionally to the higher interest rates. If listing prices go down, home values go down. You might have a 30-yr mortgage for a $1.5M home at 3% that suddenly you can't sell at $1.5M because the interest rates on new 30-yr loans is 5%-6%.

"Historically low" interest rates are unsustainable and will eventually revert higher, as we are already seeing. To be clear, this is very different than a market crash.

In other threads, where this concern was raised, I noticed a lot of insulting posts as well. The insults were not very detailed and failed to explain convincingly why this was a dumb concern. I find it interesting. Almost as if there are a lot of people on DCUM who want to vigorously quell suggestions that home values might go down if economic and fiscal policy conditions change.

Let me summarize your posts - I'm going to make a lot of assumptions and hypothetical, and fail to rely on any economic theory or empiral research, and when folks call me out on my lack of data or theoretical grounding, I'm going to complain that I'm being insulted.

[Anonymous]

This thread is silly.

[Anonymous]

If someone can point to these supposed big decline in nominal home prices arising from increases in interest rates, I'd sure appreciate it!
From the armchair experts on this forum, I've heard that they happen every time interest rates go up even a little.

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

[Anonymous]

Anonymous wrote:

Anonymous wrote:I share this perspective.

Low rates lead to a higher listing price. You think you have more purchase power because you pay less in monthly interest, but this is offset by the higher principal balance from the higher listing price.

Once rates rise and the monthly interest payment increases, the listing price will go down unless wages and purchase power have increased proportionally to the higher interest rates. If listing prices go down, home values go down. You might have a 30-yr mortgage for a $1.5M home at 3% that suddenly you can't sell at $1.5M because the interest rates on new 30-yr loans is 5%-6%.

"Historically low" interest rates are unsustainable and will eventually revert higher, as we are already seeing. To be clear, this is very different than a market crash.

In other threads, where this concern was raised, I noticed a lot of insulting posts as well. The insults were not very detailed and failed to explain convincingly why this was a dumb concern. I find it interesting. Almost as if there are a lot of people on DCUM who want to vigorously quell suggestions that home values might go down if economic and fiscal policy conditions change.

Let me summarize your posts - I'm going to make a lot of assumptions and hypothetical, and fail to rely on any economic theory or empiral research, and when folks call me out on my lack of data or theoretical grounding, I'm going to complain that I'm being insulted.

You’re not presenting anything. Just telling us you know because your husband says so.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I share this perspective.

Low rates lead to a higher listing price. You think you have more purchase power because you pay less in monthly interest, but this is offset by the higher principal balance from the higher listing price.

Once rates rise and the monthly interest payment increases, the listing price will go down unless wages and purchase power have increased proportionally to the higher interest rates. If listing prices go down, home values go down. You might have a 30-yr mortgage for a $1.5M home at 3% that suddenly you can't sell at $1.5M because the interest rates on new 30-yr loans is 5%-6%.

"Historically low" interest rates are unsustainable and will eventually revert higher, as we are already seeing. To be clear, this is very different than a market crash.

In other threads, where this concern was raised, I noticed a lot of insulting posts as well. The insults were not very detailed and failed to explain convincingly why this was a dumb concern. I find it interesting. Almost as if there are a lot of people on DCUM who want to vigorously quell suggestions that home values might go down if economic and fiscal policy conditions change.

Because there is no evidence historically that price increases supported by rate decreases revert when rates rise again. There may be some inflationary effects that reduce real prices over the long term, but with respect to actual nominal price declines due to rate increases, no. There is simply no evidence.

Have rates ever been so low? Do you need historical evidence to acknowledge that if rates double, people are going to struggle with an extra $500 per month in interest payments?

They buy less house... this is how it's always been.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I share this perspective.

Low rates lead to a higher listing price. You think you have more purchase power because you pay less in monthly interest, but this is offset by the higher principal balance from the higher listing price.

Once rates rise and the monthly interest payment increases, the listing price will go down unless wages and purchase power have increased proportionally to the higher interest rates. If listing prices go down, home values go down. You might have a 30-yr mortgage for a $1.5M home at 3% that suddenly you can't sell at $1.5M because the interest rates on new 30-yr loans is 5%-6%.

"Historically low" interest rates are unsustainable and will eventually revert higher, as we are already seeing. To be clear, this is very different than a market crash.

In other threads, where this concern was raised, I noticed a lot of insulting posts as well. The insults were not very detailed and failed to explain convincingly why this was a dumb concern. I find it interesting. Almost as if there are a lot of people on DCUM who want to vigorously quell suggestions that home values might go down if economic and fiscal policy conditions change.

Because there is no evidence historically that price increases supported by rate decreases revert when rates rise again. There may be some inflationary effects that reduce real prices over the long term, but with respect to actual nominal price declines due to rate increases, no. There is simply no evidence.

Have rates ever been so low? Do you need historical evidence to acknowledge that if rates double, people are going to struggle with an extra $500 per month in interest payments?

They buy less house... this is how it's always been.

Ah yes, take advantage of all that mid-range housing stock.

[Anonymous]

In 1971 mortgage rates were about 7.5%. In 1981, mortgage rates were 16.5%.

Over that time, house prices went up like 150% nominally. I'm not going say this predicts anything, just saying it is a data point that helps us understand there's more to nominal house price changes than interest rates.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I share this perspective.

Low rates lead to a higher listing price. You think you have more purchase power because you pay less in monthly interest, but this is offset by the higher principal balance from the higher listing price.

Once rates rise and the monthly interest payment increases, the listing price will go down unless wages and purchase power have increased proportionally to the higher interest rates. If listing prices go down, home values go down. You might have a 30-yr mortgage for a $1.5M home at 3% that suddenly you can't sell at $1.5M because the interest rates on new 30-yr loans is 5%-6%.

"Historically low" interest rates are unsustainable and will eventually revert higher, as we are already seeing. To be clear, this is very different than a market crash.

In other threads, where this concern was raised, I noticed a lot of insulting posts as well. The insults were not very detailed and failed to explain convincingly why this was a dumb concern. I find it interesting. Almost as if there are a lot of people on DCUM who want to vigorously quell suggestions that home values might go down if economic and fiscal policy conditions change.

Let me summarize your posts - I'm going to make a lot of assumptions and hypothetical, and fail to rely on any economic theory or empiral research, and when folks call me out on my lack of data or theoretical grounding, I'm going to complain that I'm being insulted.

You’re not presenting anything. Just telling us you know because your husband says so.

Yep. "Unconvincing," like I said.

[Anonymous]

People are just stupid so models don’t work.

For instance buy a starter for 500k and falls 20 percent it makes sense to trade up aa the luxury home fell twice as much.

Yet most folks do opposite

[Anonymous]

Anonymous wrote:People are just stupid so models don’t work.

For instance buy a starter for 500k and falls 20 percent it makes sense to trade up aa the luxury home fell twice as much.

Yet most folks do opposite

I have no idea what this means.