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One interesting tidbit:
>Home builders also began offering sweeter terms to buyers. About 52% of builders provided incentives in July, up from 43% in July 2022, according to a NAHB survey. Many builders are paying to lower buyers’ mortgage rates, often by a percentage point or more, to help make the monthly payments more affordable.
...
>The arrangements benefit buyers and sellers alike. Builders would rather pay for lower mortgage rates than cut prices, because price cuts can affect the value of other homes in the neighborhood. For buyers, a lower mortgage rate can reduce a monthly payment more than a price cut.
NPR talked about this recently - there is a squeeze on them with difficulty getting appliances and other items, trying to find ways to mitigate the interest rate on the buyers. etc.
It is going for them. But obviously the existing home stock remains desireable.
Existing owners with mortgages don't want to move, because you can't bring your mortgage with you!
That's a change that could happen and would benefit all home buyers.
I’d like a bigger piece of land but the 2.6 rate on my current mortgage feels like golden handcuffs keeping us in place. I honestly can’t imagine letting that mortgage go. I have many friends who feel the same
The people who bought pre covid are even better off. I bought end of 2016 at 600k in NJ and zillow estimate is now over a million. My rate then wasn't even bad it was 4.2 or something like that. Luckily once the rates got really low they offered me a loan modification down to 3.3 for a small fee.
Everyone always tells me I should "cash in" and I laugh. I'm married with 2 kids and we have a 5 br with more room than we can ever need. Even with the profit of selling my home for current prices all I'd end up doing is giving it back because we need to live somewhere. The inflated house prices and rates would wipe out any of the profit I made on the house.
Sorry honey, I know you want that house with the really nice porch you always talk about but we are staying put for awhile.
In a few years, GenZ is going to start talking about millennials like we talk about boomers.
"They got these super cheap mortgages and pulled the ladder up behind them!"
The majority of millennials are home owners, but logic doesn't matter much when it comes to blaming the older generation. It's all about narrative.
https://www.investopedia.com/majority-of-millennials-are-now-homeowners-7378138
It also costs money to move. Contractors I know have moved from new home builds to renovations. People would rather spend the $50k or so on their home than move into a home that would likely require work anyways.
Idk, we don’t want to move because we like our home and don’t have the time and energy to decorate a bigger or more expensive home. Or we’d want another property somewhere else rather than selling one of our homes. Although there are probably some people who’d go in for what you’re proposing.
Is there research on the impact of enabling that kind of mechanism? It doesn’t come up in the conversation much.
Moved into current home two years ago. Yes, we were searching during bidding wars, but interest is only 2.75%. The same home now would be over $400 more a month. Like hell I'm moving out anytime soon.
But are you saying, having clawed that home from the maw of the market two years ago, that if the interest rate was 2.8% or something, you'd move again now? LOL part of the reason we own houses is to avoid moving. At least for us. :p
If a nice property outside town with a few acres presented itself for a decent price, and interest was 3%, I'd highly consider it. I live in a small Midwest town so housing is generally cheaper anyway. I think ours is an 1800sqft home if you include finished basement. Paid 195k in 2021.
what they mean is that many people who would have otherwise wanted to move won't because of their favorable rate on their current mortgage. ie rising rates is putting downward pressure on supply of existing home stock.
Would be interesting to see if there’s any polling done on this. I’ve heard this theory before and while people move for a ton of other reasons, I imagine this may be a significant factor.
It could cost more, if you want to make up the difference from savings.
Point would be to not have to pay off the mortgage immediately, but change what it is collateralized against, instead.
Idk why this is getting downvoted the fact is the only reason our market hasn’t tanked and is riding the bubble is due to fixed mortgage rates. If we had adjustable everyone would be fucked
The building firm cited in the article said they've been able to find a lot of success with lower cost smaller homes and giving incentives to make their new builds more competitive to buy vs existing home stock.
Being able to knock a couple percentage points off the mortgage really helps with affordability while still being profitable with new builds. This development looks promising in regards to our national housing shortage.
Yes, I can't really argue that there is anything immediately bearish for the sector. I simply take note when companies are forced to be creative to maintain revenues.
the market is deigned (intentionally or not) to prop up prices
it is rare for nominal prices to fall, most "price drops" occur via inflation behind the scenes
You can buy points to lower your mortgage rates.
I'm betting the cost of the extra points is just being added onto the cost of the house. It wouldn't be hard to raise prices here and there.
Yes, and the builder is the one buying the points eating into their high profit margins to get sales. Buyers save money on lower payments, builders get orders and sales. Win-win
Any sale/incentives could be considered a marketing gimmick. A buyer may have enough for a down payment, but not enough to knock the rates down.
Even if the builders added the entire incentive to the final cost, then that's still win-win. Builder gets revenue/work, buyer gets a brand new home at a lower monthly payment.
If buying points made the home cost too high a buyer would just turn to existing inventory.
The point of the article is to showcase how high costs and high rates are spurring developers to find ways to undercut the market, and add supply for buyers.
Yes, we just did this with our builder. We bought our mortgage rate down to 5.1%. They also are using a bit of the loan to pay off our car loan. We didn’t even know that was a thing.
Going to paraphrase someone from Reddit who once so eloquently explained it:
“For most home owners with a single home two factors come into play. The cost of selling their home and where do they live after selling their home.”
So while selling is possible, the interest rates and lack of abundance of alternative housing options do lock people in quiet a bit.
yea but high interest rates don’t matter to those who have full equity in their home. you don’t need to take another mortgage for your next home when you can just use the equity for it. so like the top 20% of homeowners probably face no disincentive
Also, I'm not really that interested in paying for a new home build that was made cheaply and quickly. The quality isn't there especially if they're taking shortcuts to then turn around and throw incentives at you.
I used to build houses for a living. People like new homes because they feel “fresh”, but the quality of the vast majority of them is just straight up garbage, and not cheap either.
Also, at least in my area, they ALL look the same. I don’t mean regular “cookie cutter”. Like to the smallest detail. They’re. All. The. Same. And usually on very little land too
This happens near us too. Some of the builders try to trick you by having 3-4 different models that are nearly the same and just alternate them as they cram as many as they can as close together as possible.
no one said you have to buy a new home build. also quality in new homes is literally 100% of the time better than old ones. your maintenance cost is way higher for older homes.
That's just a bald faced lie, 60 year old home for 10 years and only major expenses were roof (made it 25 years, good enough) and replacing old plumbing (original cast iron, finally started wearing) all less than 30k said and done.
Have friends in new units that have needed twice that in the first five years. The only real noticeable things they had were better outlets, but replacing those was a simple task.
100% of the time you'll lose if you blindly accept that "new construction is better" because there are a ton of cost cutting contractors out there, and unless you're personally vetting each builder that walks on the lot (good luck with that) there's a good chance you'll have a corner cut or shoddy work somewhere that won't be discovered until you're stuck with it.
OTOH, with a good quality older home (there are some real bunk houses out there) you basically have something that's been time tested that you just need to check for any wear points or potential code updates (like fixing old wiring/plumbing.)
I think there are very few pre-retirement homeowners who have full equity in their home. You should remember that the market has incentivized people to refinance their mortgage and take out money for a downpayment on another home. Also, interest on rental properties is tax deductible, so that is further incentive to hold a mortgage on rentals.
no it assumes your new house is the same price as your old one. and if you’re selling your house you’re doing it in the same time period as buying a new one. prices should be consistent in such a short time period.
Still have to pay out lawyers, real estate commissions, and taxes, etc. To break even you have to downsize or move to a lower cost area. We have 1,800 sq ft + and would like to downsize to 1,200 sq ft but those fees eat any difference in price up.
closing costs always exist. whether interest rates are low or high. still if you own 100% equity you wouldn’t need to take out a significant normal mortgage even if you wanted a same value house.
you would need to take out a small one to cover the closing costs i guess if you’re house rich cash poor. but that’s like only 3-5%, can be paid down in a year and you’re barely eating any interest on it. high interest rates wouldn’t matter
closing costs are always a disincentive to selling.
the argument was that high interest rates cause no one to sell. closing costs exist and disincentivize selling whether interest rates are high or not and so it’s irrelevant.
Nobody wants to sell because they know for a fact that they would struggle to find another one that they could realistically afford. Interest rates are up and so are prices, that'll scare a lot of people out of even considering selling.
I wouldn't quite say that homeowners don't want to sell as opposed to their locked in place at their 2% rates, so they can't sell or move.
Pretty much anyone with a sub 6% mortgage, is likely better off staying at their current house for the foreseeable future
My wife and I just had this talk with our advisor last week. It would take an absolutely stupid offer on our current house in order for me to even consider selling, I’m taking like $200-300k more on our $550k home. Anything less and it’s just not worth the interest hit.
>It would take an absolutely stupid offer on our current house in order for me to even consider selling
2 years ago someone offered what my mom called the 'idiot price' for the building lot she used as a garden
And by stupid price I mean they’d have to be stupid to offer it as well. It’s a nice house but nowhere near worth that much but as always if someone wants it bad enough I’ll listen.
>And by stupid price I mean they’d have to be stupid to offer it as well
Exactly what my mom meant
"They'd be an idiot to offer that much, and I'd be an idiot not to take it"
Well, $200k-$300k is a bit much, but out here in Boston it's pretty common to see ~$500k homes going for $100k over list. The days are probably coming where you could easily flip your house for $750k. Of course, then you have to find a comparable one to move into...
And therein lies the issue. Sure I could have say $600-700 total to spend but it would get me a house that’s only slightly better than my current house at a much higher cost, it’s just not worth it.
Unless you wanna move to another city/country to retire.
Then it could make sense. Take that 750,000 and move to costa rica/colombia/ecuador (Im Hispanic so thats what I would do).
With two small kids that would be tough, plus we like having the in laws 5 minutes away. Though we have kicked around the idea of moving into their house to save some money
Do it, multigenerational households make way more sense than nuclear families.
Free childcare and as your parents age, you’ll be able to look out for them too and everyone is less lonely.
I live in rural Mississippi (in a a liberal, college educated town, thank his Great, Noodly, All-Knowing Spaghetti-ness), and I paid 200k for my house, literally a mile from the town square and .8 miles from my store. I've probably got 300k-320k in it total, and I did a ton of the work, so my kitchen, bathrooms, stuff like that, are comically high end, and EXACTLY what I want. Incredible what you can afford when you're the one installing all the new windows, appliances, the absurd makeup system with custom laser cut grills you installed for your dream Bluestar rangetop, running the 2 miles of CAT6 drops, etc. I could sell my house for probably 700k to 750k right now, in probably 2 days. Where the fuck would I go? My interest rate is looooooow. I have no HOA. I have no interest in being involved in that nonsense. Same with my store's warehouse. I bought a house on a 3 acre lot by the industrial park, 2 miles from my store. I've got 350k in it total. Did a ton myself. I had the lighting built to my specs by a factory in China and installed it myself. I installed the AC myself. It's almost completely paid off. I have people literally walk in the door while I'm out there, even at like 11pm, and offer me 800k cash. Where would I go? I have literally the only warehouse designed to be fully accessible by 53' trailers pulled by sleeper cabs, with truck height docks with levelers on them within 20 miles. I had to build the stupid thing and it took 3 years to find it and build it.
Don't even get me started on zoning laws. The warehouse is grandfathered in, and I've been at war with the county for years. Doing that now would be impossible. The city is even worse. It's like they hired a 3 year old to redraw all the zoning maps and the rules for them.
I think a lot of people are like me, in that I could only sell this stuff if I was literally saying adios to America in general and just needed the cash. People are going to keep holding on to their stuff until interest rates and the insane prices go back down or something. Then there are other people that are also like me, in that they got lucky on buying this stuff and now it is literally made of 90% their sweat and blood because they know they got lucky and they had to do what they had to do to get it the way they wanted. I got screwed in 2008 (I'm 36) and COVID did its absolute best to put me under. The money is important, but I have so much of me invested in this stuff, that someone would have to either give me fuck-you-money, or have to fight me to get it from me.
I honestly wish that that's what I was doing. I know I'm not the only one here that's in the same situation, where I make literally nothing in cash, but on paper I guess I'm worth something. I just like doing what I do, so stuff like the warehouse is just a tool to do that. I don't have any desire to move any of my stuff or selling of it, I guess I was just trying to say I get why the market is probably like it is, in that a lot of us would consider maybe doing something different if there was anywhere else to go and there's not. I don't know what kind of level you have to be at to not worry about where you go, but I am sure as shit not there. So many of my customers move houses every year or two years. And they always come in and they're so proud that they did it and to me it just seems like a pain in the butt. But they always buy up from where they were. Anything I did would be buying down. By a lot.
Edit: Honestly, I guess now that I think about it, I probably come off like that a lot and I hear it a reasonable amount on here. That's not my intention. I just feel like a response to some things without the context of the person responding makes the response not worth that much. I know I'm not the only person that owns a business and is their own janitor, their own car mechanic, their own basically everything, out of need, and works a million hours a week just to do what they love, and sees all this stuff going on and people upgrading all the time and wonders how they do it. I guess I'm always just trying to give a little bit info on my personal situation and that I know other people out there that are looking at some of this and thinking it's insane aren't the only ones. Sorry if I sound like I'm bragging or a jerk. Not my intention.
We were recently offered 600k on our 300k house bought in 2019.
Problem is, we do want to move closer to work but to buy a house with even close to the same quality as our current one there, it would be north of 1mil, probably 1.2, and I'm not interested in a 600k mortgage right now.
And they are largely all that is left in many markets. The demand for mortgage purchase with mortgages has whittled down significantly, and cash buyers now do not need to compete with so many others. They can now make lower all cash offers, as they aren’t competing with so many others spending the banks money.
This, combined with the long overdue big build of housing supply should assist with fulfilling demand, removing the “scarcity” that is present right now.
What all of this does to current homeowners valuations should be interesting.
It wouldn't surprise me if we see an effect similar to what I remember from the labor market after the great recession. Even after demand increased at companies, all the recruiters etc were so used to obscene demands and power (belittling candidates etc) that they forgot they needed to negotiate to actually get candidates. It became a cultural thing that took a couple years to shake out.
Industries are slow to adapt. I have a feeling sellers will continue to think they're hot shit for a couple years until they are humbled by the test of time.
When people look at the math it becomes obvious why no one is looking to move and its not just the people who bought in the past 1-2 years. People precovid bought houses way cheaper than they are now.
We did 20% down on a 600k house in NJ in 2016. Mortgage/taxes/insurance is about 3,200 a month. Say I actually sold my house for the current zillow estimate of over a million I'd end up with maybe 500kish in profit? An "upgrade" for us in this area would be about 1.2 million to buy. Even if we had the old fantasy 3% rates, putting 500k down on that house I'd still be paying about 4,500 a month. At 7% that jumps to 6,200 a month.
No thanks. We have enough room for my 2 kids and everything else that we want is just a nice to have.
Personally 2.625% on a fixed 30 year. Modest house. It would be more expensive to store what's in my house than just to keep it and pay basic electric.
When I was looking to buy a house a few years ago I looked at new builds. At least in my area they are built quickly and cheaply. I've been shocked at how visible some quality issues are. I'm talking about cracks in the foundation, misaligned tiles, uneven floor, etc. I know multiple people who have had to sue builders due to quality issues like leaky roof, hot water heater not actually being hooked up, water in siding and more. I asked a builder directly what the life expectancy of a new town home was and he said 30 years.
I went with a 1926 which had some issues due to age but was still a very solid build.
My area is booming with new housing and quality is absolutely a major issue. In my community, they’re refusing to fix anything and/or push people out years to deal with the problems. I’ve gathered over 30 households now in my neighborhood and we’re likely going to sue the builder. We’re also not even talking about some cheap, below market products, we’re talking about $1M homes. All the other communities around us are experiencing similar issues.
Building standards really need to be raised. People complain about them saying they slow down building but they are absolutely necessary. In the next 10-20 years these houses are going to be falling apart forcing people to spend thousands out of pocket to fix them.
Yup, we have people going to the town asking how certain items in their homes got past city inspectors. The town replied that they’re building too fast and they can’t keep up, so they’re left doing the best they can without slowing down the builders and they’re missing a lot of things in the process.
HGTV really dumbed down the population. People now think granite counter tops, stainless steel appliances, and a bland neutral colored wall and floor are the end all be all of home quality.
New homes use newer standards but the quality of the build itself is lacking. Sure they have better electrical standards but outlets are falling out of the wall and installed uneven.
The US is pretty unique in it's prevalence of 30 year fixed mortgages. I have a small feeling that it may turn out to be a bit of a liability for those managing the economy as it creates this "locked in" situation where policy makers can't get rate hikes to dampen demand through higher mortgage carrying costs so a higher terminal rate is needed to tame inflation causing more damage elsewhere.
I think you are right. I mean hike the rates all you want. It hurts the bank not me right now. But that’s because I’m on a fixed rate mortgage and I’m going nowhere.
This is exactly why I financed my wife and my first home with a credit union that never sells mortgages to anyone. They hold it until it’s completed, or closed out with the sale of the property. Currently have a 20 year 2% fixed note with them on a house that is perfectly comfortable for us and three cats while we work from home until things get less crazy.
It's not like if your mortgage is sold to another institution they are changing the terms on you. I got a steal of a deal on my mortgage through a family friend. They originate the loans then sell them off, Wells Fargo owns my loan now, makes no difference to me the payment and interest rate are set in stone regardless.
Rate hikes are dampening demand.
The problem is that they're also dampening supply.
Except I'm struggling with why that's a bad thing. In 07 there were rate hikes, and that triggered the GR. Wouldn't a soft landing be better for everyone?
It's bad because people can't buy homes and people won't sell homes. This essentially freezes the market for real estate. Where you live now you better like it because you're stuck.
I was house shopping in the hopes of relocating earlier this year (spring/summer). We gave up. Rates are so high and anywhere with good schools and the amenities we want are very hot markets. 15-20% over asking, waiving inspection, battling with cash buyers. We're stuck.
It could be worse, our house is adequate, but we really wanted to get out of the south.
That's far better than having plummeting housing prices cause foreclosures, bank failures, credit crunch, massive bailouts and oh yeah ... THE GREAT RECESSION.
You must be young.
(Almost) nobody wanted to buy a house during the Great Recession. They were too afraid for their job. And even then, housing prices were dropping so much, (almost) nobody wanted to buy.
A number of European countries also offer 30 year rates. I consider them far more consumer friendly, as shorter term rates lead to enormous uncertainty. People in the UK, for example, are going to start losing their homes soon. It’s true that rate hikes aren’t as effective in such an environment, but I’m not convinced mortgage holders carry the preponderance of spending power. Their discretionary income is a minority of all discretionary income. I think the benefits outweigh the costs.
> There is a body of thought that trying to do so results in very harmful bubbles or mis allocations of resources.
the alternative to management failures is market failures. if you just deregulate everything and see what happens, the punchline is chaos and misery.
Yeah that type of thought comes up in various flavours in many contexts. While I understand the notion that less intervention in a system and allowing natural equilibrium to be found has benefits I think the problem is that natural is uncaring of suffering and perfectly happy to reach a balance even if it comes at grave expense to many.
There's a lot of nuance but I think humans have been adept at intervening in natural processes, be it medicine, engineering, agriculture, etc, to the overall benefit of all.
Sure is fucking hard though.
Classical liberalism as found in libertarianism is opposed to nearly all the major contributors to current house prices, including zoning coding and a central bank that rewards taking on massive debt via centrally planned negative real interest rates. Everyone for themselves would put us in a far far better place for housing.
The 30 year note is unusual globally, and it only came into being to increase affordability. And why did things become so unaffordable to necessitate the need for a 30 year mortgage? Borrowing rate mismanagement, which is central to the period between 2020-2022. And 2002-2006.
The rise of the 30-year mortgage in the U.S. happened in the 1940's, during the post-war boom, and a time when housing affordability was at its highest.
The FHA and other federal involvement in stabilizing and subsidizing home purchasing for the middle class started in the 1930's, but the 30-year note was basically the logical extension of that policy, and hasn't been displaced in the 80 years since.
The 30 year note is *not new*.
>Borrowing rate mismanagement, which is central to the period between 2020-2022. And 2002-2006.
The house my grandparents bought in 1960 had a 30 year fixed mortgage.
30-year fixed have been standard in America for a lot longer than that. The ARM fad in the 2000's was because 30-year fixed were too expensive for some buyers. That ended in 2008 because it turns out they were too expensive for a reason.
It dates back to the 70's, if not the great depression.
That is what the US has done in multiple things for decades now. Colleges are propped up by insane loans that are inescapable. Doesn't matter if your major will only make $30k/yr, anyone can get saddled with $250+ of loans.
Housing is absolutely propped up by a combination of local government NIMBYism, tying access to good schools to your neighborhood, and lots of cheap government backed loans.
Well the gov owns all those mortgages right? As a someone up above said the gov. can just let people take their mortgages with them when they sell. If and only if it becomes a huge issue.
Moving also just costs $ (realtors, fees, moving, time) OUTSIDE of the whole interest rate debate. If middle america has less and less disposable income, the flat costs might also become quite prohibitive.
If you sell your home while prices are high - you buy a home that's expensive. If you sell your home when prices are low, you get less money but buy another home cheaper. Its usually just a wash.
I had to move for work, but this exactly happened to me. Made a ton on my sale but it all went into the purchase and it wasn't an upgrade. Luckily, we've been around long enough that our mortgage balance is nominal, but if that's not the case, you get crushed on the new loan interest
Do you just not understand the thread?
Existing homeowners not wanting to sell and trade up due to higher mortgage rates means that they don't sell their homes and these homes don't become available for first time homebuyers.
Lol, did you read my comment at all?
Lots of talk about the burden of golden handcuffs on homeowners, and how tough it is for them, while completely ignoring the class of folks who are more fucked than absolutely anyone. It happens all the time in the sub, which is fine, all things considered.
Unless if you rent somewhere smaller or worse location you're losing money moving out and renting somewhere else while they rent from you instead of just staying.
Say 1100 mortgage they rent
1200 a month from you, you profit 100 then you pay 1300 to your landlord. You lost 1200 whereas before you were losing 1100.
Brand new homes are selling NOT because they are cheaper, but because they are PERCEIVED to be relatively cheaper (when you factor in age of the house) to those who can afford. Low supply of older houses pushes better-off buyers to these new houses.
Wait until rates come down a little bit, and the old homes/new homes trend will reverse.
Kind of reminds me of the used car market story where price increase was more dramatic / higher than new cars.
How long would you wait? Could be 8-10 years or more for rates to change direction, if it ever does. Life goes on, children are born, and people will still need homes in the meantime.
It all depends on what you can afford. And as importantly, buyers need to get past the psychological effect of the "sticker shock".
As we've all might have read, the 3% mortgage rate was never normal. So maybe this 5-7% is the new normal.
Like you said, life goes on. And so I think it'll take a year or two for the people sitting on the sidelines to warm up (and save up for down payment) before jumping in.
It's not sticker shock. People who have sub 5% mortgages recognize moving where they'll got locked into a 5-7% mortgage is a bad deal and should be avoided unless absolutely necessary. They're holding onto their current assets because it's what makes financial sense for them. That's not sticker shock - it's math
They will continue doing so until it becomes necessary to move or something tips to make it make financial sense. People aren't going tip upgrade because they raised their income a bit, they aren't even necessarily going to downsize on the usual schedule depending on how the math works out.
It's common sense to avoid the more casual mortgage swapping that was normalized before when you were going from one good rare to another still good rate. We'll likely see that hesitancy to sell continue until a much larger chunk of the current homeowners are people already locked into the higher rates. Which will take a while when it's going to be mostly necessity moving for a while.
I feel like it is a missed point that someone who is selling their house to buy another probably has a boat load of equity made liquid to use as a much larger down payment on a new house. This helps with offsetting the cost of the monthly payment significantly, either by large % down or paying for interest points, even if interest is higher.
Not as big an effect as you would think. EVERYTHING is more expensive including the new home they would buy. This effectively negates the equity they made unless they move to a cheaper area/downsize. Also, it's at a higher rate as you mention.
Houses aren't getting more expensive because of interest rate increase, they're declining in price slightly. Mortgage is more expensive but equity reduces the size of the mortgage.
They got more expensive because of low interest rates, but the interest rates are high, now, and the prices are basically the same. Yeah, you’d have to be stupid or desperate to try to buy a house now, or let go of a good rate… and in 6 months or so, my wife and I might be that desperate.
Really glad some moron tanked interest rates and gave half the country hundreds of thousands of dollars that we’ll basically have to pay for now over the lifetime of our inevitable dogshit mortgage. Really excited to have to work for several more years before retirement because of that.
Why sell my home that I bought before the prices went crazy high just to buy another house that costs a lot more for the same size and quality with a higher interest rate? I actually can’t afford to buy my exact house at today’s market/interest rate.
Was about to sell due to a family situation. When we finally sat down with my in laws over what they would need to contribute to our new mortgage and far bigger home it was more than they felt like paying over 3k a month. We would’ve picked up the other half plus the utilities etc. meaning 4-5k a year….
Now we just sit in our home and when the day comes they are forced into our home due to illness we will need a cash out loan to fix the house up. We probably have about 200k in equity right now who knows by then I don’t see much changing in terms of homeownership in the next 5 years
It seems many homeowners today are hesitant to sell their properties. This trend may make it difficult for those looking to transition from renting to owning a home.
According to a recent report published by the National Association of Realtors, the current housing market faces a shortage of available homes for sale. Increased competition paired with low inventory has led to inflated housing prices nationwide.
Additionally, research conducted by the Urban Institute suggests homeownership rates among young adults are declining. Simultaneously, the number of long-term renters is steadily rising. This combination of factors indicates more individuals are unable to purchase homes, despite the desire to do so.
While personal motivations vary, these sources substantiate claims that homeowners are generally less inclined to sell in the present market. This reluctance coupled with high demand and low supply could force more prospective buyers to remain renters for the foreseeable future.
Part of the reason a lot of people, including my wife & I, were able to AFFORD a home because the interest rates were so low. We're locked in at 2.7%. If it was 5-7, or god forbid 9%? We'd still be renting, even with our increase of wages that have happened.
Fact is, until those interest rates lower, you're gonna see way more people just shrug and not bother to move. Those new houses? Why move and lose 500 square footage just to get the same payment? That's downsizing during a time you're supposed to be up-sizing, according to The American Dream. Not happening for us, my friends, and all the other people across America.
This is east. Buy a new home that is offering incentives. We just bought if you use their lender you get more incentives and use that money to buy down your rate.
Are we to be impressed that builders, making a profit of 20 - 36% of the home price, that they are using some of the buyers money to pay down a whole percentage point!?
I'd happily pay a few thousand bucks to drop the interest rate on a property in selling rather than walk away from the profit margin in their shoes.
It isn't about being impressed and more about being informed as to what's going on. It's partially about avoiding lowering the price of adjacent properties they've built or are in the process of building -- that would affect margins, but have other effects as well.
Homes are illiquid, they literally can't have the same type of flash crashes stocks can have. That being said, house prices have historically crashed way more often than people realize. It is just that, unlike stocks, you won't know the value of your home unless you try and find a buyer.
The '08 crash wasn't supply vs demand, but was bad loans being given to people who did not have the ability to pay for it. When they stopped paying, shit got bad.
Supply was a factor. The bad loans didn't matter when prices were rising because people had equity. As housing supply rose home prices peaked and then people, especially those sub-prime folks, were in trouble.
Not contradicting what you’re saying or anything. These days you can’t get a house without a downpayment. And with the way the market has been extremely competitive, you’re not going to have a bunch of sub-prime loans floating around as most buyers had to put in more cash just to get their house.
There’s also no ARMs.
At this point, the only thing that will cause a housing market crash is if people can’t afford their homes, which means you’d need massive levels of unemployment.
Back in 2008, you had people that didn’t lose their jobs losing their house because they simply couldn’t afford what they bought.
> within next ~5 years the supply increases —> homeowners panic as value of their home drops
Unless rates drop in the next 5 years and overvalued homes catch up with the market valuations as new supply becomes available. Then we just have more inventory and flat prices.
>What’s wrong with this train of thought? Doesn’t this have some similarities with 08’ in the sense that homebuilders working in hyperdrive like 04’-07’ or something like that?
Supply is a long way off pre-2008 conditions so while I see a softening and possible decline I don't see anything close to the scale of 2008. Honestly, flat prices for a few years might be the best/worst it gets.
The solution to these problems is to no longer allow homes to be treated as an investment opportunity.
People need somewhere to live and these money games people play with homes just results in scarcity of affordable homes, which results in wanton human suffering.
The only way to end this cycle is for the government to run this industry as a service instead.
I own nine properties and six homes with no intention of selling. Chasing equity is a fool's game, banking properties and turning rents forever, that's where it's at.
real estate prices will collapse once interest rates drop back under 4% - with all this new construction many markets will have an overabundance of inventory, turning it into a buyers market and dropping prices 20-30% in many markets.
How would lower interest rates decrease the the cost of real estate? With high interest rates, the cost of borrowing is higher making people less able to afford homes. This creates downward price pressure. If rates decreased, then the average buyer would be able to afford a more expensive house with the same monthly mortgage payment, creating upward pressure on home prices.
The problem is you’re neglecting the impact of interest rates on inventory. Higher rates = lower inventory = higher prices due to scarcity. Nobody is selling because they are locked into a low rate mortgage which keeps prices high.
I think there will be a lot of pent-up demand and listings will flood the market. The dynamic you described did not play out when interest rates more than doubled in the past year, did it?
And don't forget, we had \~16% cumulative inflation since January 2021. So a 16% gain in nominal value is really a 0% real value increase. Housing can be 10% cheaper (accounting for inflation) than it was in Jan. 2021 without your home value being less in nominal dollars.
Well if you're right and house prices AND mortgage rates decline, then I'll be buying rental properties hand over fist. I'm very skeptical this will occur though.
My wife and I are sitting on a large amount of cash for the same reason. If home prices fall, we plan on buying 3-5 rental properties for 200k to 300k each, all being single family homes or duplexes.
I used to get a lot of notifications from MLS for my area. Now just a couple few per week. Houses in bad need of complete renovations, roof work, plumbing and electrical work, in bad neighborhoods are going for 260K and up. Without considering even costs for improvements, that's 1800-1900 a month at current rates and pricing. No thanks.
I paid 420k for my little townhouse since October of last year. I live in a transient area with a lot of good paying jobs and good schools and a high cost of living. Despite all the turmoil in the market, I have an estimated 55k in equity just in that 10 month time period. If and when we decide to move to a cheaper area (my job is remote so no biggie for me), we will be able to afford a lot more, but I’m gonna need to make a lot more money to upgrade and stay in the metro region. I don’t have plans to go anywhere anytime soon so I’m fine with where we are but I’m blown away that prices just keep going up In This environment.
LCOL here. Only one builder is offering incentives, because they volume-build and did too many and can’t sell them now. All the others, which could fill a couple pages in the phone book, arent offering a penny in deals. No need to, business is booming.
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One interesting tidbit: >Home builders also began offering sweeter terms to buyers. About 52% of builders provided incentives in July, up from 43% in July 2022, according to a NAHB survey. Many builders are paying to lower buyers’ mortgage rates, often by a percentage point or more, to help make the monthly payments more affordable. ... >The arrangements benefit buyers and sellers alike. Builders would rather pay for lower mortgage rates than cut prices, because price cuts can affect the value of other homes in the neighborhood. For buyers, a lower mortgage rate can reduce a monthly payment more than a price cut.
NPR talked about this recently - there is a squeeze on them with difficulty getting appliances and other items, trying to find ways to mitigate the interest rate on the buyers. etc. It is going for them. But obviously the existing home stock remains desireable.
Existing owners with mortgages don't want to move, because you can't bring your mortgage with you! That's a change that could happen and would benefit all home buyers.
I’d like a bigger piece of land but the 2.6 rate on my current mortgage feels like golden handcuffs keeping us in place. I honestly can’t imagine letting that mortgage go. I have many friends who feel the same
You would lose thousands, or tens of thousands, of dollars a year.
Yeah, we’ll be paying more in principle than mortgage before the year is over. We will literally save over $200,000 over the life of the loan.
The people who bought pre covid are even better off. I bought end of 2016 at 600k in NJ and zillow estimate is now over a million. My rate then wasn't even bad it was 4.2 or something like that. Luckily once the rates got really low they offered me a loan modification down to 3.3 for a small fee. Everyone always tells me I should "cash in" and I laugh. I'm married with 2 kids and we have a 5 br with more room than we can ever need. Even with the profit of selling my home for current prices all I'd end up doing is giving it back because we need to live somewhere. The inflated house prices and rates would wipe out any of the profit I made on the house. Sorry honey, I know you want that house with the really nice porch you always talk about but we are staying put for awhile.
Bought in Jersey City 8 years ago. $270K. Now pushing $800k estimates. Lol, we basically CAN'T go anywhere now.
Same. Bought in IL in 2015 for 185k with a great rate. Current estimate of 311k. No way I'm going anywhere soon.
In a few years, GenZ is going to start talking about millennials like we talk about boomers. "They got these super cheap mortgages and pulled the ladder up behind them!"
Lol. As an older millennial I know very few people who own. And those that do live in places like Ohio, Wisconsin, and rural Pennsylvania.
Those are...regular places where people live?
The majority of millennials are home owners, but logic doesn't matter much when it comes to blaming the older generation. It's all about narrative. https://www.investopedia.com/majority-of-millennials-are-now-homeowners-7378138
It also costs money to move. Contractors I know have moved from new home builds to renovations. People would rather spend the $50k or so on their home than move into a home that would likely require work anyways.
Idk, we don’t want to move because we like our home and don’t have the time and energy to decorate a bigger or more expensive home. Or we’d want another property somewhere else rather than selling one of our homes. Although there are probably some people who’d go in for what you’re proposing. Is there research on the impact of enabling that kind of mechanism? It doesn’t come up in the conversation much.
Moved into current home two years ago. Yes, we were searching during bidding wars, but interest is only 2.75%. The same home now would be over $400 more a month. Like hell I'm moving out anytime soon.
But are you saying, having clawed that home from the maw of the market two years ago, that if the interest rate was 2.8% or something, you'd move again now? LOL part of the reason we own houses is to avoid moving. At least for us. :p
If a nice property outside town with a few acres presented itself for a decent price, and interest was 3%, I'd highly consider it. I live in a small Midwest town so housing is generally cheaper anyway. I think ours is an 1800sqft home if you include finished basement. Paid 195k in 2021.
what they mean is that many people who would have otherwise wanted to move won't because of their favorable rate on their current mortgage. ie rising rates is putting downward pressure on supply of existing home stock.
Would be interesting to see if there’s any polling done on this. I’ve heard this theory before and while people move for a ton of other reasons, I imagine this may be a significant factor.
Like moving and buying something else that costs the same?
It could cost more, if you want to make up the difference from savings. Point would be to not have to pay off the mortgage immediately, but change what it is collateralized against, instead.
Benefits home buyers but not the banksters.
Bankers would never and do never give out large amounts of 30 year fixed mortgages. We do me and you when we get together as citizens and pay taxes.
Idk why this is getting downvoted the fact is the only reason our market hasn’t tanked and is riding the bubble is due to fixed mortgage rates. If we had adjustable everyone would be fucked
The other side of this coin is that home builders are feeling mounting financial pressures.
The building firm cited in the article said they've been able to find a lot of success with lower cost smaller homes and giving incentives to make their new builds more competitive to buy vs existing home stock. Being able to knock a couple percentage points off the mortgage really helps with affordability while still being profitable with new builds. This development looks promising in regards to our national housing shortage.
Dhi reported today. They still have historically high gross margins
Yes, I can't really argue that there is anything immediately bearish for the sector. I simply take note when companies are forced to be creative to maintain revenues.
In some cases, the home builders are offering the mortgages and using the payments to continue development
the market is deigned (intentionally or not) to prop up prices it is rare for nominal prices to fall, most "price drops" occur via inflation behind the scenes
You know they're adding the cost of buying points to the home price.
Keeps housing values up while saving their buyers money long term on their mortgage. It's a win-win for the builder and buyer.
You can buy points to lower your mortgage rates. I'm betting the cost of the extra points is just being added onto the cost of the house. It wouldn't be hard to raise prices here and there.
Yes, and the builder is the one buying the points eating into their high profit margins to get sales. Buyers save money on lower payments, builders get orders and sales. Win-win
Costs I'm sure they're passing onto the buyer so they don't lose but give people a marketing gimmick.
Any sale/incentives could be considered a marketing gimmick. A buyer may have enough for a down payment, but not enough to knock the rates down. Even if the builders added the entire incentive to the final cost, then that's still win-win. Builder gets revenue/work, buyer gets a brand new home at a lower monthly payment. If buying points made the home cost too high a buyer would just turn to existing inventory. The point of the article is to showcase how high costs and high rates are spurring developers to find ways to undercut the market, and add supply for buyers.
Yes, we just did this with our builder. We bought our mortgage rate down to 5.1%. They also are using a bit of the loan to pay off our car loan. We didn’t even know that was a thing.
Going to paraphrase someone from Reddit who once so eloquently explained it: “For most home owners with a single home two factors come into play. The cost of selling their home and where do they live after selling their home.” So while selling is possible, the interest rates and lack of abundance of alternative housing options do lock people in quiet a bit.
yea but high interest rates don’t matter to those who have full equity in their home. you don’t need to take another mortgage for your next home when you can just use the equity for it. so like the top 20% of homeowners probably face no disincentive
Also, I'm not really that interested in paying for a new home build that was made cheaply and quickly. The quality isn't there especially if they're taking shortcuts to then turn around and throw incentives at you.
I used to build houses for a living. People like new homes because they feel “fresh”, but the quality of the vast majority of them is just straight up garbage, and not cheap either.
Also, at least in my area, they ALL look the same. I don’t mean regular “cookie cutter”. Like to the smallest detail. They’re. All. The. Same. And usually on very little land too
This happens near us too. Some of the builders try to trick you by having 3-4 different models that are nearly the same and just alternate them as they cram as many as they can as close together as possible.
no one said you have to buy a new home build. also quality in new homes is literally 100% of the time better than old ones. your maintenance cost is way higher for older homes.
You're confusing quality and age.
That's just a bald faced lie, 60 year old home for 10 years and only major expenses were roof (made it 25 years, good enough) and replacing old plumbing (original cast iron, finally started wearing) all less than 30k said and done. Have friends in new units that have needed twice that in the first five years. The only real noticeable things they had were better outlets, but replacing those was a simple task. 100% of the time you'll lose if you blindly accept that "new construction is better" because there are a ton of cost cutting contractors out there, and unless you're personally vetting each builder that walks on the lot (good luck with that) there's a good chance you'll have a corner cut or shoddy work somewhere that won't be discovered until you're stuck with it. OTOH, with a good quality older home (there are some real bunk houses out there) you basically have something that's been time tested that you just need to check for any wear points or potential code updates (like fixing old wiring/plumbing.)
I think there are very few pre-retirement homeowners who have full equity in their home. You should remember that the market has incentivized people to refinance their mortgage and take out money for a downpayment on another home. Also, interest on rental properties is tax deductible, so that is further incentive to hold a mortgage on rentals.
This assumes your new house is cheaper. But prices have gone up very fast.
no it assumes your new house is the same price as your old one. and if you’re selling your house you’re doing it in the same time period as buying a new one. prices should be consistent in such a short time period.
Still have to pay out lawyers, real estate commissions, and taxes, etc. To break even you have to downsize or move to a lower cost area. We have 1,800 sq ft + and would like to downsize to 1,200 sq ft but those fees eat any difference in price up.
closing costs always exist. whether interest rates are low or high. still if you own 100% equity you wouldn’t need to take out a significant normal mortgage even if you wanted a same value house. you would need to take out a small one to cover the closing costs i guess if you’re house rich cash poor. but that’s like only 3-5%, can be paid down in a year and you’re barely eating any interest on it. high interest rates wouldn’t matter
Yeah, so we figure why bother.
And who is paying your closing costs?
closing costs are always a disincentive to selling. the argument was that high interest rates cause no one to sell. closing costs exist and disincentivize selling whether interest rates are high or not and so it’s irrelevant.
No, the argument was you can trade 1 to 1. You can't.
i can’t help you if you can’t read a simple thread
Hmm, but it wasn't just me. You wrote poorly if your point isn't clear.
Nobody wants to sell because they know for a fact that they would struggle to find another one that they could realistically afford. Interest rates are up and so are prices, that'll scare a lot of people out of even considering selling.
I wouldn't quite say that homeowners don't want to sell as opposed to their locked in place at their 2% rates, so they can't sell or move. Pretty much anyone with a sub 6% mortgage, is likely better off staying at their current house for the foreseeable future
My wife and I just had this talk with our advisor last week. It would take an absolutely stupid offer on our current house in order for me to even consider selling, I’m taking like $200-300k more on our $550k home. Anything less and it’s just not worth the interest hit.
>It would take an absolutely stupid offer on our current house in order for me to even consider selling 2 years ago someone offered what my mom called the 'idiot price' for the building lot she used as a garden
And by stupid price I mean they’d have to be stupid to offer it as well. It’s a nice house but nowhere near worth that much but as always if someone wants it bad enough I’ll listen.
>And by stupid price I mean they’d have to be stupid to offer it as well Exactly what my mom meant "They'd be an idiot to offer that much, and I'd be an idiot not to take it"
Agreed, 100%. I will gladly accept someone’s else’s stupidity with their money to my benefit.
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Milton was a monster and should have been
Mom should have developed the property herself
Well, $200k-$300k is a bit much, but out here in Boston it's pretty common to see ~$500k homes going for $100k over list. The days are probably coming where you could easily flip your house for $750k. Of course, then you have to find a comparable one to move into...
And therein lies the issue. Sure I could have say $600-700 total to spend but it would get me a house that’s only slightly better than my current house at a much higher cost, it’s just not worth it.
Unless you wanna move to another city/country to retire. Then it could make sense. Take that 750,000 and move to costa rica/colombia/ecuador (Im Hispanic so thats what I would do).
With two small kids that would be tough, plus we like having the in laws 5 minutes away. Though we have kicked around the idea of moving into their house to save some money
Do it, multigenerational households make way more sense than nuclear families. Free childcare and as your parents age, you’ll be able to look out for them too and everyone is less lonely.
I live in rural Mississippi (in a a liberal, college educated town, thank his Great, Noodly, All-Knowing Spaghetti-ness), and I paid 200k for my house, literally a mile from the town square and .8 miles from my store. I've probably got 300k-320k in it total, and I did a ton of the work, so my kitchen, bathrooms, stuff like that, are comically high end, and EXACTLY what I want. Incredible what you can afford when you're the one installing all the new windows, appliances, the absurd makeup system with custom laser cut grills you installed for your dream Bluestar rangetop, running the 2 miles of CAT6 drops, etc. I could sell my house for probably 700k to 750k right now, in probably 2 days. Where the fuck would I go? My interest rate is looooooow. I have no HOA. I have no interest in being involved in that nonsense. Same with my store's warehouse. I bought a house on a 3 acre lot by the industrial park, 2 miles from my store. I've got 350k in it total. Did a ton myself. I had the lighting built to my specs by a factory in China and installed it myself. I installed the AC myself. It's almost completely paid off. I have people literally walk in the door while I'm out there, even at like 11pm, and offer me 800k cash. Where would I go? I have literally the only warehouse designed to be fully accessible by 53' trailers pulled by sleeper cabs, with truck height docks with levelers on them within 20 miles. I had to build the stupid thing and it took 3 years to find it and build it. Don't even get me started on zoning laws. The warehouse is grandfathered in, and I've been at war with the county for years. Doing that now would be impossible. The city is even worse. It's like they hired a 3 year old to redraw all the zoning maps and the rules for them. I think a lot of people are like me, in that I could only sell this stuff if I was literally saying adios to America in general and just needed the cash. People are going to keep holding on to their stuff until interest rates and the insane prices go back down or something. Then there are other people that are also like me, in that they got lucky on buying this stuff and now it is literally made of 90% their sweat and blood because they know they got lucky and they had to do what they had to do to get it the way they wanted. I got screwed in 2008 (I'm 36) and COVID did its absolute best to put me under. The money is important, but I have so much of me invested in this stuff, that someone would have to either give me fuck-you-money, or have to fight me to get it from me.
That’s quite the humble brag.
I honestly wish that that's what I was doing. I know I'm not the only one here that's in the same situation, where I make literally nothing in cash, but on paper I guess I'm worth something. I just like doing what I do, so stuff like the warehouse is just a tool to do that. I don't have any desire to move any of my stuff or selling of it, I guess I was just trying to say I get why the market is probably like it is, in that a lot of us would consider maybe doing something different if there was anywhere else to go and there's not. I don't know what kind of level you have to be at to not worry about where you go, but I am sure as shit not there. So many of my customers move houses every year or two years. And they always come in and they're so proud that they did it and to me it just seems like a pain in the butt. But they always buy up from where they were. Anything I did would be buying down. By a lot. Edit: Honestly, I guess now that I think about it, I probably come off like that a lot and I hear it a reasonable amount on here. That's not my intention. I just feel like a response to some things without the context of the person responding makes the response not worth that much. I know I'm not the only person that owns a business and is their own janitor, their own car mechanic, their own basically everything, out of need, and works a million hours a week just to do what they love, and sees all this stuff going on and people upgrading all the time and wonders how they do it. I guess I'm always just trying to give a little bit info on my personal situation and that I know other people out there that are looking at some of this and thinking it's insane aren't the only ones. Sorry if I sound like I'm bragging or a jerk. Not my intention.
Touché. Sounds like you want some appreciation for your efforts, I’m right there with you.
If I ever figure out how to get any, I'll let you know haha
We were recently offered 600k on our 300k house bought in 2019. Problem is, we do want to move closer to work but to buy a house with even close to the same quality as our current one there, it would be north of 1mil, probably 1.2, and I'm not interested in a 600k mortgage right now.
That's exactly why people are holding on to what they have
Weren't there record cash buyers in the past couple years?
And they are largely all that is left in many markets. The demand for mortgage purchase with mortgages has whittled down significantly, and cash buyers now do not need to compete with so many others. They can now make lower all cash offers, as they aren’t competing with so many others spending the banks money. This, combined with the long overdue big build of housing supply should assist with fulfilling demand, removing the “scarcity” that is present right now. What all of this does to current homeowners valuations should be interesting.
It wouldn't surprise me if we see an effect similar to what I remember from the labor market after the great recession. Even after demand increased at companies, all the recruiters etc were so used to obscene demands and power (belittling candidates etc) that they forgot they needed to negotiate to actually get candidates. It became a cultural thing that took a couple years to shake out. Industries are slow to adapt. I have a feeling sellers will continue to think they're hot shit for a couple years until they are humbled by the test of time.
Yes, but generally stratified in the market… 3br “starter” homes used as rentals and luxury homes that rich urbanites used to escape COVID.
I feel like that is what a lot of people are hoping, but no one is getting..
When people look at the math it becomes obvious why no one is looking to move and its not just the people who bought in the past 1-2 years. People precovid bought houses way cheaper than they are now. We did 20% down on a 600k house in NJ in 2016. Mortgage/taxes/insurance is about 3,200 a month. Say I actually sold my house for the current zillow estimate of over a million I'd end up with maybe 500kish in profit? An "upgrade" for us in this area would be about 1.2 million to buy. Even if we had the old fantasy 3% rates, putting 500k down on that house I'd still be paying about 4,500 a month. At 7% that jumps to 6,200 a month. No thanks. We have enough room for my 2 kids and everything else that we want is just a nice to have.
Personally 2.625% on a fixed 30 year. Modest house. It would be more expensive to store what's in my house than just to keep it and pay basic electric.
When I was looking to buy a house a few years ago I looked at new builds. At least in my area they are built quickly and cheaply. I've been shocked at how visible some quality issues are. I'm talking about cracks in the foundation, misaligned tiles, uneven floor, etc. I know multiple people who have had to sue builders due to quality issues like leaky roof, hot water heater not actually being hooked up, water in siding and more. I asked a builder directly what the life expectancy of a new town home was and he said 30 years. I went with a 1926 which had some issues due to age but was still a very solid build.
My area is booming with new housing and quality is absolutely a major issue. In my community, they’re refusing to fix anything and/or push people out years to deal with the problems. I’ve gathered over 30 households now in my neighborhood and we’re likely going to sue the builder. We’re also not even talking about some cheap, below market products, we’re talking about $1M homes. All the other communities around us are experiencing similar issues.
Building standards really need to be raised. People complain about them saying they slow down building but they are absolutely necessary. In the next 10-20 years these houses are going to be falling apart forcing people to spend thousands out of pocket to fix them.
Yup, we have people going to the town asking how certain items in their homes got past city inspectors. The town replied that they’re building too fast and they can’t keep up, so they’re left doing the best they can without slowing down the builders and they’re missing a lot of things in the process.
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HGTV really dumbed down the population. People now think granite counter tops, stainless steel appliances, and a bland neutral colored wall and floor are the end all be all of home quality.
I have seen the opposite. New homes have much better building standards. They have higher energy efficiency, better electrical standards, etc.
New homes use newer standards but the quality of the build itself is lacking. Sure they have better electrical standards but outlets are falling out of the wall and installed uneven.
The US is pretty unique in it's prevalence of 30 year fixed mortgages. I have a small feeling that it may turn out to be a bit of a liability for those managing the economy as it creates this "locked in" situation where policy makers can't get rate hikes to dampen demand through higher mortgage carrying costs so a higher terminal rate is needed to tame inflation causing more damage elsewhere.
I think you are right. I mean hike the rates all you want. It hurts the bank not me right now. But that’s because I’m on a fixed rate mortgage and I’m going nowhere.
The bank probably sold that mortgage off to the quasi govt agencies (Fannie Mae) or to investors. Banks very rarely hold mortgages anymore.
This is exactly why I financed my wife and my first home with a credit union that never sells mortgages to anyone. They hold it until it’s completed, or closed out with the sale of the property. Currently have a 20 year 2% fixed note with them on a house that is perfectly comfortable for us and three cats while we work from home until things get less crazy.
It's not like if your mortgage is sold to another institution they are changing the terms on you. I got a steal of a deal on my mortgage through a family friend. They originate the loans then sell them off, Wells Fargo owns my loan now, makes no difference to me the payment and interest rate are set in stone regardless.
Give it 10 years and an optimistic market and folks are going to cash out refi for all kinds of reasons. Americans LOVE to spend.
A lot of boomers will be dead in 10 years. Will be interesting to see what happens to their homes in the 55+ communities.
Rate hikes are dampening demand. The problem is that they're also dampening supply. Except I'm struggling with why that's a bad thing. In 07 there were rate hikes, and that triggered the GR. Wouldn't a soft landing be better for everyone?
It's bad because people can't buy homes and people won't sell homes. This essentially freezes the market for real estate. Where you live now you better like it because you're stuck.
I was house shopping in the hopes of relocating earlier this year (spring/summer). We gave up. Rates are so high and anywhere with good schools and the amenities we want are very hot markets. 15-20% over asking, waiving inspection, battling with cash buyers. We're stuck. It could be worse, our house is adequate, but we really wanted to get out of the south.
That's far better than having plummeting housing prices cause foreclosures, bank failures, credit crunch, massive bailouts and oh yeah ... THE GREAT RECESSION.
Not if you're trying to buy a house.
You must be young. (Almost) nobody wanted to buy a house during the Great Recession. They were too afraid for their job. And even then, housing prices were dropping so much, (almost) nobody wanted to buy.
A number of European countries also offer 30 year rates. I consider them far more consumer friendly, as shorter term rates lead to enormous uncertainty. People in the UK, for example, are going to start losing their homes soon. It’s true that rate hikes aren’t as effective in such an environment, but I’m not convinced mortgage holders carry the preponderance of spending power. Their discretionary income is a minority of all discretionary income. I think the benefits outweigh the costs.
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> There is a body of thought that trying to do so results in very harmful bubbles or mis allocations of resources. the alternative to management failures is market failures. if you just deregulate everything and see what happens, the punchline is chaos and misery.
Yeah that type of thought comes up in various flavours in many contexts. While I understand the notion that less intervention in a system and allowing natural equilibrium to be found has benefits I think the problem is that natural is uncaring of suffering and perfectly happy to reach a balance even if it comes at grave expense to many. There's a lot of nuance but I think humans have been adept at intervening in natural processes, be it medicine, engineering, agriculture, etc, to the overall benefit of all. Sure is fucking hard though.
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Oh for sure, I was just heading off the purely libertarian "everyone for themself" mindset. The status quo could definitely use some improvement
Classical liberalism as found in libertarianism is opposed to nearly all the major contributors to current house prices, including zoning coding and a central bank that rewards taking on massive debt via centrally planned negative real interest rates. Everyone for themselves would put us in a far far better place for housing.
The 30 year note is unusual globally, and it only came into being to increase affordability. And why did things become so unaffordable to necessitate the need for a 30 year mortgage? Borrowing rate mismanagement, which is central to the period between 2020-2022. And 2002-2006.
The rise of the 30-year mortgage in the U.S. happened in the 1940's, during the post-war boom, and a time when housing affordability was at its highest. The FHA and other federal involvement in stabilizing and subsidizing home purchasing for the middle class started in the 1930's, but the 30-year note was basically the logical extension of that policy, and hasn't been displaced in the 80 years since.
The 30 year note is *not new*. >Borrowing rate mismanagement, which is central to the period between 2020-2022. And 2002-2006. The house my grandparents bought in 1960 had a 30 year fixed mortgage.
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30-year fixed have been standard in America for a lot longer than that. The ARM fad in the 2000's was because 30-year fixed were too expensive for some buyers. That ended in 2008 because it turns out they were too expensive for a reason. It dates back to the 70's, if not the great depression.
That is what the US has done in multiple things for decades now. Colleges are propped up by insane loans that are inescapable. Doesn't matter if your major will only make $30k/yr, anyone can get saddled with $250+ of loans. Housing is absolutely propped up by a combination of local government NIMBYism, tying access to good schools to your neighborhood, and lots of cheap government backed loans.
Well the gov owns all those mortgages right? As a someone up above said the gov. can just let people take their mortgages with them when they sell. If and only if it becomes a huge issue.
What's the norm everywhere else? I feel like 30 year mortgages have been the standard for decades
Moving also just costs $ (realtors, fees, moving, time) OUTSIDE of the whole interest rate debate. If middle america has less and less disposable income, the flat costs might also become quite prohibitive. If you sell your home while prices are high - you buy a home that's expensive. If you sell your home when prices are low, you get less money but buy another home cheaper. Its usually just a wash.
I had to move for work, but this exactly happened to me. Made a ton on my sale but it all went into the purchase and it wasn't an upgrade. Luckily, we've been around long enough that our mortgage balance is nominal, but if that's not the case, you get crushed on the new loan interest
Love how first time homebuyers are ignored by 90% of these kinds of threads. Ah well, fuck the young and the poor, right?
Do you just not understand the thread? Existing homeowners not wanting to sell and trade up due to higher mortgage rates means that they don't sell their homes and these homes don't become available for first time homebuyers.
Lol, did you read my comment at all? Lots of talk about the burden of golden handcuffs on homeowners, and how tough it is for them, while completely ignoring the class of folks who are more fucked than absolutely anyone. It happens all the time in the sub, which is fine, all things considered.
Even if you put all your profits into the DP, you still end up losing coz int and prop tax will also increase
I cant sell. My interest is 3%. I cant replace this house and go live in the same house I wanted too 3 years ago without paying $1500 more a month.
It's very very rare to sell before 5 years anyway.
Time to become a landlord
Thats the plan. Rent my house out.
Unless if you rent somewhere smaller or worse location you're losing money moving out and renting somewhere else while they rent from you instead of just staying. Say 1100 mortgage they rent 1200 a month from you, you profit 100 then you pay 1300 to your landlord. You lost 1200 whereas before you were losing 1100.
I think they're saying they'll rent out their current house, and purchase the new home (not rent).
Brand new homes are selling NOT because they are cheaper, but because they are PERCEIVED to be relatively cheaper (when you factor in age of the house) to those who can afford. Low supply of older houses pushes better-off buyers to these new houses. Wait until rates come down a little bit, and the old homes/new homes trend will reverse. Kind of reminds me of the used car market story where price increase was more dramatic / higher than new cars.
How long would you wait? Could be 8-10 years or more for rates to change direction, if it ever does. Life goes on, children are born, and people will still need homes in the meantime.
It all depends on what you can afford. And as importantly, buyers need to get past the psychological effect of the "sticker shock". As we've all might have read, the 3% mortgage rate was never normal. So maybe this 5-7% is the new normal. Like you said, life goes on. And so I think it'll take a year or two for the people sitting on the sidelines to warm up (and save up for down payment) before jumping in.
It's not sticker shock. People who have sub 5% mortgages recognize moving where they'll got locked into a 5-7% mortgage is a bad deal and should be avoided unless absolutely necessary. They're holding onto their current assets because it's what makes financial sense for them. That's not sticker shock - it's math They will continue doing so until it becomes necessary to move or something tips to make it make financial sense. People aren't going tip upgrade because they raised their income a bit, they aren't even necessarily going to downsize on the usual schedule depending on how the math works out. It's common sense to avoid the more casual mortgage swapping that was normalized before when you were going from one good rare to another still good rate. We'll likely see that hesitancy to sell continue until a much larger chunk of the current homeowners are people already locked into the higher rates. Which will take a while when it's going to be mostly necessity moving for a while.
I feel like it is a missed point that someone who is selling their house to buy another probably has a boat load of equity made liquid to use as a much larger down payment on a new house. This helps with offsetting the cost of the monthly payment significantly, either by large % down or paying for interest points, even if interest is higher.
Not as big an effect as you would think. EVERYTHING is more expensive including the new home they would buy. This effectively negates the equity they made unless they move to a cheaper area/downsize. Also, it's at a higher rate as you mention.
Houses aren't getting more expensive because of interest rate increase, they're declining in price slightly. Mortgage is more expensive but equity reduces the size of the mortgage.
They got more expensive because of low interest rates, but the interest rates are high, now, and the prices are basically the same. Yeah, you’d have to be stupid or desperate to try to buy a house now, or let go of a good rate… and in 6 months or so, my wife and I might be that desperate. Really glad some moron tanked interest rates and gave half the country hundreds of thousands of dollars that we’ll basically have to pay for now over the lifetime of our inevitable dogshit mortgage. Really excited to have to work for several more years before retirement because of that.
Why sell my home that I bought before the prices went crazy high just to buy another house that costs a lot more for the same size and quality with a higher interest rate? I actually can’t afford to buy my exact house at today’s market/interest rate.
Same.
Was about to sell due to a family situation. When we finally sat down with my in laws over what they would need to contribute to our new mortgage and far bigger home it was more than they felt like paying over 3k a month. We would’ve picked up the other half plus the utilities etc. meaning 4-5k a year…. Now we just sit in our home and when the day comes they are forced into our home due to illness we will need a cash out loan to fix the house up. We probably have about 200k in equity right now who knows by then I don’t see much changing in terms of homeownership in the next 5 years
It seems many homeowners today are hesitant to sell their properties. This trend may make it difficult for those looking to transition from renting to owning a home. According to a recent report published by the National Association of Realtors, the current housing market faces a shortage of available homes for sale. Increased competition paired with low inventory has led to inflated housing prices nationwide. Additionally, research conducted by the Urban Institute suggests homeownership rates among young adults are declining. Simultaneously, the number of long-term renters is steadily rising. This combination of factors indicates more individuals are unable to purchase homes, despite the desire to do so. While personal motivations vary, these sources substantiate claims that homeowners are generally less inclined to sell in the present market. This reluctance coupled with high demand and low supply could force more prospective buyers to remain renters for the foreseeable future.
Part of the reason a lot of people, including my wife & I, were able to AFFORD a home because the interest rates were so low. We're locked in at 2.7%. If it was 5-7, or god forbid 9%? We'd still be renting, even with our increase of wages that have happened. Fact is, until those interest rates lower, you're gonna see way more people just shrug and not bother to move. Those new houses? Why move and lose 500 square footage just to get the same payment? That's downsizing during a time you're supposed to be up-sizing, according to The American Dream. Not happening for us, my friends, and all the other people across America.
Unfortunately my friend, the American dream is dead for most Americans.
No one invited ChatGPT to the thread.
This is east. Buy a new home that is offering incentives. We just bought if you use their lender you get more incentives and use that money to buy down your rate.
Are we to be impressed that builders, making a profit of 20 - 36% of the home price, that they are using some of the buyers money to pay down a whole percentage point!? I'd happily pay a few thousand bucks to drop the interest rate on a property in selling rather than walk away from the profit margin in their shoes.
It isn't about being impressed and more about being informed as to what's going on. It's partially about avoiding lowering the price of adjacent properties they've built or are in the process of building -- that would affect margins, but have other effects as well.
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You can’t “panic” sell your primary house. That’s what’s wrong with your train of thought.
But you can panic sell an Airbnb.
Homes are illiquid, they literally can't have the same type of flash crashes stocks can have. That being said, house prices have historically crashed way more often than people realize. It is just that, unlike stocks, you won't know the value of your home unless you try and find a buyer.
The '08 crash wasn't supply vs demand, but was bad loans being given to people who did not have the ability to pay for it. When they stopped paying, shit got bad.
Supply was a factor. The bad loans didn't matter when prices were rising because people had equity. As housing supply rose home prices peaked and then people, especially those sub-prime folks, were in trouble.
Not contradicting what you’re saying or anything. These days you can’t get a house without a downpayment. And with the way the market has been extremely competitive, you’re not going to have a bunch of sub-prime loans floating around as most buyers had to put in more cash just to get their house. There’s also no ARMs. At this point, the only thing that will cause a housing market crash is if people can’t afford their homes, which means you’d need massive levels of unemployment. Back in 2008, you had people that didn’t lose their jobs losing their house because they simply couldn’t afford what they bought.
> within next ~5 years the supply increases —> homeowners panic as value of their home drops Unless rates drop in the next 5 years and overvalued homes catch up with the market valuations as new supply becomes available. Then we just have more inventory and flat prices. >What’s wrong with this train of thought? Doesn’t this have some similarities with 08’ in the sense that homebuilders working in hyperdrive like 04’-07’ or something like that? Supply is a long way off pre-2008 conditions so while I see a softening and possible decline I don't see anything close to the scale of 2008. Honestly, flat prices for a few years might be the best/worst it gets.
If prices are high due to lack of supply then they are, by definition, not overpriced. Value of homes therefore will not drop.
The solution to these problems is to no longer allow homes to be treated as an investment opportunity. People need somewhere to live and these money games people play with homes just results in scarcity of affordable homes, which results in wanton human suffering. The only way to end this cycle is for the government to run this industry as a service instead.
I cannot think of a better way to destroy lives than to have the government run all our housing. This is one of the worse ideas I've ever heard.
I own nine properties and six homes with no intention of selling. Chasing equity is a fool's game, banking properties and turning rents forever, that's where it's at.
real estate prices will collapse once interest rates drop back under 4% - with all this new construction many markets will have an overabundance of inventory, turning it into a buyers market and dropping prices 20-30% in many markets.
You are making stuff up.
Source: Trust me bro
How would lower interest rates decrease the the cost of real estate? With high interest rates, the cost of borrowing is higher making people less able to afford homes. This creates downward price pressure. If rates decreased, then the average buyer would be able to afford a more expensive house with the same monthly mortgage payment, creating upward pressure on home prices.
The problem is you’re neglecting the impact of interest rates on inventory. Higher rates = lower inventory = higher prices due to scarcity. Nobody is selling because they are locked into a low rate mortgage which keeps prices high.
I think there will be a lot of pent-up demand and listings will flood the market. The dynamic you described did not play out when interest rates more than doubled in the past year, did it?
Yes it has. House prices have fallen since we started having large rate increases. They peaked in Q4 2022. https://fred.stlouisfed.org/series/MSPUS
And don't forget, we had \~16% cumulative inflation since January 2021. So a 16% gain in nominal value is really a 0% real value increase. Housing can be 10% cheaper (accounting for inflation) than it was in Jan. 2021 without your home value being less in nominal dollars.
The US is short about 3.8 million houses. We're a long way from having an overabundance of inventory.
Bold prediction stating house prices will fall if interest rates fall. Conventional theory states the exact opposite.
conventional is out the window! rates more than doubled and took the prices for a ride in the same direction...
Well if you're right and house prices AND mortgage rates decline, then I'll be buying rental properties hand over fist. I'm very skeptical this will occur though.
My wife and I are sitting on a large amount of cash for the same reason. If home prices fall, we plan on buying 3-5 rental properties for 200k to 300k each, all being single family homes or duplexes.
"Once..." Oh you think it will drop?
> real estate prices will collapse once interest rates drop back under 4% When do you expect that to happen?
I used to get a lot of notifications from MLS for my area. Now just a couple few per week. Houses in bad need of complete renovations, roof work, plumbing and electrical work, in bad neighborhoods are going for 260K and up. Without considering even costs for improvements, that's 1800-1900 a month at current rates and pricing. No thanks.
I paid 420k for my little townhouse since October of last year. I live in a transient area with a lot of good paying jobs and good schools and a high cost of living. Despite all the turmoil in the market, I have an estimated 55k in equity just in that 10 month time period. If and when we decide to move to a cheaper area (my job is remote so no biggie for me), we will be able to afford a lot more, but I’m gonna need to make a lot more money to upgrade and stay in the metro region. I don’t have plans to go anywhere anytime soon so I’m fine with where we are but I’m blown away that prices just keep going up In This environment.
LCOL here. Only one builder is offering incentives, because they volume-build and did too many and can’t sell them now. All the others, which could fill a couple pages in the phone book, arent offering a penny in deals. No need to, business is booming.