The difference is higher inflation, which likely leads to higher pay rises, so actually the real interest rate is lower than it was.
Still waiting on that sweet inflation adjusted pay raise.
U.S. mortgage interest rates jump to 7.16%, highest since 2001
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Re: U.S. mortgage interest rates jump to 7.16%, highest since 2001
#12How this effects housing prices:
Housing prices are determined largely by what payments people can manage to make.
At 3.22% (the approximate rate on Jan 1 2022) A $2000 payment can finance $462,000. At 7.7% (what google says is the current average rate) it would only finance about $280,000. At 12% (my personal guess at where rates will peak in about 18 months before quickly returning to around 7% for several years after that) it will finance $195,000.
Additionally, there are very ignorant people that took out ARM loans even though interest rates were historically low. Those people will almost all face foreclosure in the next few years, very few people can afford to make a mortgage payment that is 3x what they signed up for.
Re: U.S. mortgage interest rates jump to 7.16%, highest since 2001
#13This rate is for a 30-year fixed rate mortgage, and more a reflection of the uncertainty for that period of time and not something that will necessarily influence shorter-term lending rates.
That conflates term and other risk premiums. Interest rates are composed of:
- Risk Free Rate
- Inflation
- Default Risk Premium
- Liquidity Premium
- Maturity Premium
Re: U.S. mortgage interest rates jump to 7.16%, highest since 2001
#14The article says rates have more than doubled since the beginning of the year. Uaing a mortgage calc for $400k and 20% down: 3.58% = $522k, or $202k in interest 7.16% = $778k, or $458k in interest
There is nuance that interest changes over the period of the loan. In or so 2007 some people took 5% Euribor + margin loans, but only some years after it was negative. And since negative euribor was not written to contracs some paid less interest than was margin.
Re: U.S. mortgage interest rates jump to 7.16%, highest since 2001
#15This will pressure prices down presumably which is a good thing for cash buyers but basically no one else.
Why only cash buyers? Even if I am borrowing money to pay for something, I would rather pay less than more.
Re: U.S. mortgage interest rates jump to 7.16%, highest since 2001
#16The difference is higher inflation, which likely leads to higher pay rises, so actually the real interest rate is lower than it was.
Only if you believe high inflation to continue over the majority of the mortgage duration.
Re: U.S. mortgage interest rates jump to 7.16%, highest since 2001
#17If rates go from a low of 2% up to, say, 9%, then in order to keep the mortgage payment the same, the price of a $400,000 house would have to drop to around $230,000. This assumes a 30-year fixed rate mortgage, and the details will vary depending on money down, etc. but the basic fact remains that house prices will need to fall by a lot, down to levels of 5 years ago or more, before the current interest rate hiking c…
A lot of people simply won't sell in that situation which is going to further constrain supply.
Re: U.S. mortgage interest rates jump to 7.16%, highest since 2001
#18We have a great house with a 2.75% mortgage. It would be hard to leave now, because a similar house would be a much higher monthly mortgage. Stuck, but thankfully we really love it and not plan on leaving.
Re: U.S. mortgage interest rates jump to 7.16%, highest since 2001
#19If rates go from a low of 2% up to, say, 9%, then in order to keep the mortgage payment the same, the price of a $400,000 house would have to drop to around $230,000. This assumes a 30-year fixed rate mortgage, and the details will vary depending on money down, etc. but the basic fact remains that house prices will need to fall by a lot, down to levels of 5 years ago or more, before the current interest rate hiking c…
I don't see how they're going to go down that low. To do that, you need to have oversupply, or you need to be able to build a house for that price (building prices are up and will likely stay up due to prices of materials, living cost, and energy).
Employers are having trouble finding labor, the government has its foot on the neck of the non-green energy sector, the world is not producing like it used to when prices fell in the past.
Re: U.S. mortgage interest rates jump to 7.16%, highest since 2001
#20This will pressure prices down presumably which is a good thing for cash buyers but basically no one else.
It's a good thing for everyone. Even if you have a mortgage, when the principal is lower you can pay it off sooner by paying more than the minimum. This inflated asset bubble is strangling our society, especially for housing.