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

[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.

Ah, glad the sexism came out right away. Bravo.

[Anonymous]

Anonymous wrote: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.

This.

[Anonymous]

I don’t agree with any of this. Sure if rates go up you (specifically) may buy less house (to keep monthly pmt the same) but it’s not like there won’t be a buyer for the $1.5 mil house that sold when rates were lower. It just may be a different person. In some areas of the country, the distribution of buyers may be degenerate (no pun intended) but probably not here in the DMV. A richer person will buy that house at a higher rate just like you’ll buy a cheaper house too.

[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.

Very well said!

[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.

Ta-da!

[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.

Ta-da!

Your evidence is that Japan cut interest rates in the early 1990s and yet prices continued their steep decline for another decade?

[Anonymous]

OP is dumb. Low supply with high demand leads to increased prices. It's a supply issue, not an interest rate issue. But OP is too enamored with himself to look beyond his middle school reasoning.

[Anonymous]

Anonymous wrote:OP is dumb. Low supply with high demand leads to increased prices. It's a supply issue, not an interest rate issue. But OP is too enamored with himself to look beyond his middle school reasoning.

This is another of those unconvincing insult posts. It's clearly both a supply AND interest rate issue. Cheap mortgages is one of the whole reasons for Fed policy to lower interest rates in the first place. It is widely accepted that cheap mortgages has led to inflated real estate prices. The question is really whether those prices will stay inflated as interest rates rise. Maybe the supply crunch will keep home prices up, but interest rates will always be a factor in home purchase decisions.

[Anonymous]

Anonymous wrote:

Anonymous wrote: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.

This.

That math is pretty simple.

[Anonymous]

Anonymous wrote:what is even happening

I don’t know why this response made me laugh so hard.

[Anonymous]

Anonymous wrote:OP is dumb. Low supply with high demand leads to increased prices. It's a supply issue, not an interest rate issue. But OP is too enamored with himself to look beyond his middle school reasoning.

Dumb or not, I’m saying the truth. You’re so scared by that truth that you resort to bullying. You clearly have middle school mentality and development. Maybe you are just a tween. Best I not deal with minors such as yourself.

[Anonymous]

Anonymous wrote:

Anonymous wrote:OP is dumb. Low supply with high demand leads to increased prices. It's a supply issue, not an interest rate issue. But OP is too enamored with himself to look beyond his middle school reasoning.

Dumb or not, I’m saying the truth. You’re so scared by that truth that you resort to bullying. You clearly have middle school mentality and development. Maybe you are just a tween. Best I not deal with minors such as yourself.

And who told you I’m a ‘he’? You in love with your daddy?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:OP is dumb. Low supply with high demand leads to increased prices. It's a supply issue, not an interest rate issue. But OP is too enamored with himself to look beyond his middle school reasoning.

Dumb or not, I’m saying the truth. You’re so scared by that truth that you resort to bullying. You clearly have middle school mentality and development. Maybe you are just a tween. Best I not deal with minors such as yourself.

And who told you I’m a ‘he’? You in love with your daddy?

Wow, the "higher interest rates don't matter" posters are wild. Who knew.

[Anonymous]

Anonymous wrote:

Anonymous wrote:what is even happening

I don’t know why this response made me laugh so hard.

+1!

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:OP is dumb. Low supply with high demand leads to increased prices. It's a supply issue, not an interest rate issue. But OP is too enamored with himself to look beyond his middle school reasoning.

Dumb or not, I’m saying the truth. You’re so scared by that truth that you resort to bullying. You clearly have middle school mentality and development. Maybe you are just a tween. Best I not deal with minors such as yourself.

And who told you I’m a ‘he’? You in love with your daddy?

Wow, the "higher interest rates don't matter" posters are wild. Who knew.

I don’t think they’re wild, just bad actors. Every real estate agent I know would tell you ‘it’s a great time to buy! Rates are so low!’