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U.S. mortgage interest rates jump to 7.16%, highest since 2001

reuters.com

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Re: U.S. mortgage interest rates jump to 7.16%, highest since 2001

#271

Post by caeril »

antisthenes wrote: post #259
fknorangesite wrote: post #214

Earlier quoted context omitted.

What makes you say that? People often consider places "starter" vs "forever" homes, for example.

Frankly, I don't know any peers (millenials), that are able to afford anything more than a starter home anyway. That seems like a very outdated concept for people who are very well-off. I mean, most of us aren't even able to afford to buy a home, let alone casually upgrade to a "forever" home. In my high COL area, even starter homes are only affordable for top 20 percentile earners. Everyone else either lives with ro…

> don't know any peers (millenials), that are able to afford

> In my high COL area

Yes, it is a problem that Millenials refuse to live anywhere other than Instagram-worthy locations. God, what would Becky think if I posted a TikTok from flyover country? And imagine shopping at Walmart, I would literally die frfr no cap.

How we could ever solve this vexing self-inflicted problem, I have no idea. What a quandary.

> seems like a very outdated concept

Yes, much like the outdated concept that building tangible wealth in underpriced assets is worth the cost of a slightly lower number next to the heart icon. Fucking boomers, amirite?

Re: U.S. mortgage interest rates jump to 7.16%, highest since 2001

#272

Post by 015a »

algoatecorn wrote: post #44
rossdavidh wrote: post #7

If 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…

Most of the people I speak to who locked in Current renters will have lower potential to save on a monthly basis, only to get 30-40% off on their first home with a >7% interest rate. If you sum the lost savings from rent plus the additional interest payment, it is uncertain whether that is the best strategy. That is also assuming real estate prices in certain regions wont hold stronger value, which they probably will…

Couple things to note about this:

1) Mortgages dropped below 3.5% in ~2019. The median duration of home ownership in the US is 8 years. So: asserting that "most people I speak to who have locked in 2) People severely underestimate how many houses in the US have no mortgage against them. Its somewhere around 35-40%. That's oftentimes because: the typical home seller in 2021 was 56 years old. The friends you queried are (probably) an anomaly in the market.

3) The reasons cited for why home owners sell their properties is far more varied than financial. The most typical reasons are: current home is too small, want to live closer to friends or family, moving for work, the neighborhood is becoming undesirable, and... death. Even in lower interest rate environments, most of these reasons would have resulted in a higher monthly payment; that's reasonably normal. The monthly payments today are, well, much higher; but the fiction that "I'm not selling because I'll end up paying more" doesn't really have basis in the core motivations for home sales (they might in the absolute pits of a recession, but that doesn't usually last long; certainly not as long as elevated interest rates; and even if they did, plenty of people end up being forced to sell because of money; but they're not going to go buy a new home in this market).

4) Happening simultaneously with rising interest rates is: the largest transfer of wealth in the history of the united states. Boomers are dying. Its estimated that, as their deaths accelerate over the next ten years, $30T-$60T in wealth (most of it in: real estate!) will be inherited by younger generations. Those numbers are mind-boggling. Its estimated that millennials, as a generational cohort, currently hold something like $10T in total wealth.

Point being; there's a lot going on right now. Its really difficult to draw single-post conclusions about any of it.

https://fred.stlouisfed.org/series/MORTGAGE30US

https://www.thezebra.com/resources/home/average-length-of-ho...

https://www.forbes.com/sites/brendarichardson/2019/07/26/nea...

https://www.nar.realtor/research-and-statistics/research-rep...

https://www.forbes.com/sites/josephcoughlin/2021/11/16/mille...

https://www.magnifymoney.com/news/net-worth-of-millennials/

Re: U.S. mortgage interest rates jump to 7.16%, highest since 2001

#273

Post by 015a »

DontchaKnowit wrote: post #242
game_the0ry wrote: post #180

As I read the comments here, and observe discussions about housing in the media and among friends / family, I can't help but to pick up that two opposing groups start to manifest: 1. homeowners, who have total confidence in the market, willfully ignoring the influence of federal reserve policy, and everything "just work out in the long term," and 2. aspiring homeowners, who are hoping for a fall in prices, regardless…

I understand it isn't ideal that a new homeowner would have the price if their house collapse after purchasing, but if you never intend to sell, what possible harm could that do to you? For instance- I could afford 3 of my current mortgages currently, so if I have to move but would get wreck on the price if I sold currently, all I have to do is go back to renting and rent my house out. So what harm could this do to m…

> I could afford 3 of my current mortgages currently,

The key word being: currently. I wouldn't begin to speak to individual situations, but: what the World is and will continue to go through in order to correct some of the imbalance that happened over the past ten years will decimate a lot of people. Maybe ironically, the people it may least impact are the people who were already decimated. As they say, when a tornado hits, homeowners lose their home, but the homeless lose nothing.

And, I'm sure, Bezos will be fine. Its the people in the middle that always get screwed.

Re: U.S. mortgage interest rates jump to 7.16%, highest since 2001

#274

Post by game_the0ry »

DontchaKnowit wrote: post #242
game_the0ry wrote: post #180

As I read the comments here, and observe discussions about housing in the media and among friends / family, I can't help but to pick up that two opposing groups start to manifest: 1. homeowners, who have total confidence in the market, willfully ignoring the influence of federal reserve policy, and everything "just work out in the long term," and 2. aspiring homeowners, who are hoping for a fall in prices, regardless…

I understand it isn't ideal that a new homeowner would have the price if their house collapse after purchasing, but if you never intend to sell, what possible harm could that do to you? For instance- I could afford 3 of my current mortgages currently, so if I have to move but would get wreck on the price if I sold currently, all I have to do is go back to renting and rent my house out. So what harm could this do to m…

> but if you never intend to sell, what possible harm could that do to you?

Operative word being if

> So what harm could this do to me?

It will harm those around you. I advise you look at yourself as a part of the American society you participate in - acting like we are separate is the source of many of our problems.

Re: U.S. mortgage interest rates jump to 7.16%, highest since 2001

#275

Post by RhysU »

UncleMeat wrote: post #143
mupuff1234 wrote: post #91

Earlier quoted context omitted.

Not selling doesn't magically make your house keep it's market value. As long as there's someone in the vicinity selling at a lower price your house would lose value either way. And there's always someone selling.

But no harm comes to me if my house value drops considerably if I'm not selling it. I keep on paying the same mortgage payment as before and I keep on living in my house. If the mortgage payment was worth it before, then it is worth it after. The risk here is a home's value dropping a lot, putting somebody underwater, and then life circumstances forcing them to sell. That's bad. But for the rest of us that happily ma…

Moreover, one's property taxes should fall as housing prices fall.

Re: U.S. mortgage interest rates jump to 7.16%, highest since 2001

#276

Post by floxy »

antisthenes wrote: post #259
fknorangesite wrote: post #214

Earlier quoted context omitted.

What makes you say that? People often consider places "starter" vs "forever" homes, for example.

Frankly, I don't know any peers (millenials), that are able to afford anything more than a starter home anyway. That seems like a very outdated concept for people who are very well-off. I mean, most of us aren't even able to afford to buy a home, let alone casually upgrade to a "forever" home. In my high COL area, even starter homes are only affordable for top 20 percentile earners. Everyone else either lives with ro…

$99,000 -- 4 bed rm, 3000 sq. ft.

https://www.zillow.com/homedetails/319-N-11th-St-Nebraska-Ci...?

$125,000 -- 4 bd, 4230 sq. ft.

https://www.zillow.com/homedetails/31237-County-Highway-62-U...?

$80,000 - 4 bd, 1547 sq. ft.

https://www.zillow.com/homedetails/711-W-North-St-Norton-KS-...

$149,900 - 5 bd, 1980 sq. ft, on 10 acres

https://www.zillow.com/homedetails/N4675-State-Highway-52-Br...

$104,900 -- 4 bd, 2300 sq. ft.

https://www.zillow.com/homedetails/316-E-Franklin-St-Clinton...

$55,000 -- 6 bd, 2198 sq. ft.

https://www.zillow.com/homedetails/4554-Holly-Ave-Saint-Loui...

Re: U.S. mortgage interest rates jump to 7.16%, highest since 2001

#277

Post by frumper »

rsj_hn wrote: post #268
frumper wrote: post #263

Earlier quoted context omitted.

Homes built in the 1950s don't sell for discounts in my town. They might have added some attic insulation for a few thousand dollars, but the walls, plumbing and electrical is probably original. Some of our priciest neighborhoods are homes from the 50s and 60s.

In your area, they don't use square footage as an important factor in determining the price of a house?

It is. Smaller square foot houses tend to go for more per sq ft. That said, my house is 1700 sq ft built mid 50s. We looked at many anywhere from 1500-3000k built in the 50s and 60s. But a 1700sq ft house built in the 50s doesn’t get discounted over a 1700sq ft home built in the 2000s despite old plumping, electrical and insulation. Homes in disrepair obviously are cheaper, but that’s just as true for 20 year old homes as 70.

Re: U.S. mortgage interest rates jump to 7.16%, highest since 2001

#278

Post by hotpotamus »

caeril wrote: post #271
antisthenes wrote: post #259

Earlier quoted context omitted.

Frankly, I don't know any peers (millenials), that are able to afford anything more than a starter home anyway. That seems like a very outdated concept for people who are very well-off. I mean, most of us aren't even able to afford to buy a home, let alone casually upgrade to a "forever" home. In my high COL area, even starter homes are only affordable for top 20 percentile earners. Everyone else either lives with ro…

> don't know any peers (millenials), that are able to afford > In my high COL area Yes, it is a problem that Millenials refuse to live anywhere other than Instagram-worthy locations. God, what would Becky think if I posted a TikTok from flyover country? And imagine shopping at Walmart, I would literally die frfr no cap. How we could ever solve this vexing self-inflicted problem, I have no idea. What a quandary. > see…

Do the high COL Instagram-worthy locations happen to be wear all the jobs are? Not everyone can work remote.

Frankly, I'm vexed by the trends as well, but from the opposite direction - I liked when South Texas was the backwater and Austin was a weird little city, but I don't think there's any going back. My property taxes sure aren't. I'm just hoping that I can make enough to retire somewhere cheaper and cooler in the summer eventually.

Re: U.S. mortgage interest rates jump to 7.16%, highest since 2001

#279

Post by 015a »

lotsofpulp wrote: post #247
BuckRogers wrote: post #241

Earlier quoted context omitted.

The refi is an unknown and incurs closing costs again. That's a big gamble, and if it were guaranteed to work out, everyone would get an ARM. I view those statements as a "put your money where your mouth is, get an ARM", but few do. I agree with you if the lower downpayment is proportional to the cost difference incurred between 7 and 3%. It hasn't been so far, not even close. I've run the numbers for my own purchase…

> It hasn't been so far, not even close. Yes, it will take a little time for the supply and demand curves to adjust. And, of course, popular/richer areas may not adjust down as much as less popular/poorer areas. > Even if not, there's risk that you won't gain off whichever investment is chosen. This is political, but if the US government lets its stock market indices fall/stagnate over the long term (5 to 10 years),…

Here's a little math. Let's assume a $400,000 home pre-high interest rate regime. Assume, and this is the critical assumption as you say: six to twelve months from now that price drops 10%, to $360,000.

You, the buyer, put 10% down. Pre-regime: $40,000 + $360,000 @ a 3% interest rate = $1,518/mo. In the future: $36,000 + $324,000 @ 7% interest = $2,156/mo (+$638/mo)

Imagine the pre-regime buyer invests the difference. $0 upfront + over 30 years, at a conservative rate of 4% APY, that's: $442,000.

Assume, again, interest rates stabilize and drop to, say, 4% five years from now. The person holding the 3% mortgage does not refinance, because why would they?

The post-regime buyer invests the amount saved up-front, and refinances in five years. Their returns on that initial down payment investment, same 4% APY over 30y: ~$13,000. Their new monthly after that point would be $1458 (amortization schedule + reduced interest rate). They, also, invest the difference in their monthlies (+$698/mo @ 4% APY over 25 years); added on to the down payment savings returns: $371,000.

Two interesting points which extend out of this math:

1) The hypothetical home price reductions over the next months/years don't have to go far above 10% before the benefit flips in favor of the person who waited. I haven't ran the math, but I'd estimate somewhere around 15%.

2) This doesn't take into account, say, investing the down payment for the person who waited, over the past two years.

3) As interest rates recover, housing prices likely follow. But they're recovering from the bottom, not the top where many bought. Imagine, say, in ten years, this home is valued at $450,000. All else already described being equal, the person who waited can add even more to their gains beyond the person who bought early; closing the gap further (the exact amount of calculable, but I'm too lazy to figure out the amortization schedules).

None of this asserts that it was a "mistake" or something to buy early. Just that its not all doom and gloom "your financial future is fucked" for people buying now. Its really surprisingly close once you run the math; the people saying "I feel like I won the lottery with 3%" may retire, decades from now, ahead half a years salary.

Re: U.S. mortgage interest rates jump to 7.16%, highest since 2001

#280

Post by frumper »

ethbr0 wrote: post #270
frumper wrote: post #267

Earlier quoted context omitted.

Withdrawals are subject to taxes which is fair because you haven't paid taxes on it yet. While there may be some wiggle room for 401k administrators or the IRS, generally if you don't have other resources for a down payment on a house then you won't see any penalties for the withdrawal. The 401k loan will depend on your plan, but the terms are defined by your general plan, not something that the administrator will de…

We allow people to save for college in tax advantaged plans. Why not houses? And if so, why not use a vehicle that already exists (401k/IRA) instead of creating a whole new one? The conventional wisdom that borrowing from your 401k to buy a house is always a poor move seems... overly reductive and a bit patronizing. If someone isn't able to fund their 401k and save for a down payment, who am I to tell them that using…

I mean, I'd love to save for a home with a tax advantaged account. That sounds so good that if I ever planned on moving I'd want to max out my contributions to that, sell my house, take the money I earn from that house and dump it in my Roth 401k since I won't pay taxes on most of the capital gains, then take the distribution from the home savings account and put it towards the next down payment on a house and avoid taxes there too. As for why we don't allow you to do that from a 401k, for the same reason we have separate accounts for the education savings. 401k is designed to incentive retirement, not education or housing. Society could decide to make 401k's more broad, but I suspect that would just lead to the more well off people being able to better use them as tax shelters. Mortgages are already subsidized in other ways, including government down payment assistance, or low down payment requirements for loans.
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