undefined | Better HN

0 pointsalasdair_4y ago0 comments

>My reply: asset prices don't matter to ordinary people.

Home values matter enormously to people. So does the value of their 401k, especially those aged 50+

0 comments

I'm glad I bought my house while rates are very low. While sticker prices are very high right now, the price when factoring in very low interest rates on mortgages are much closer to a historical normal (although still elevated because of the lack of new construction over the last few years). I'm worried for new buyers in the coming years getting stick with these same high sticker prices, AND high interest rates.

californical4y ago

But when interest rates go up, the price of homes will drop.

Sal is an average American. Sal can afford $1500/mo for a mortgage, regardless of interest rates.

Today, Sal can get a 3% rate, meaning they can afford a $440k mortgage (with 20% down payment).

If interest rates rise to 6%, Sal can now only afford a $310k mortgage for that same $1500/mo.

If Sal were the only person who had this problem, then Sal would have to settle for a cheaper house than average. But if 90%+ of buyers are in the same situation, then the housing supply will be overpriced compared to what the market is able to pay.

This drives the prices way down, and it would eventually settle to the price that the market can bear, which might be slightly more than the $310k, but probably not too much.

alasdair_OP4y ago

>Sal can afford $1500/mo for a mortgage, regardless of interest rates.

If interest rates are 15% like they were in the early 80s, Sal will be expecting salary increases of >15% a year to keep up, so that $1500/mo won't stay that way for long.

j / k navigate · click thread line to collapse