Re:Anxiety Strikes $8T Mortgage-Debt Market After SVB Collapse
by s1artibartfast on Tuesday March 21, 2023 @10:31AM
(#35246725)
What does inflation look like in your hypothetical with 20% interest? Do house prices not inflate?
Re:Anxiety Strikes $8T Mortgage-Debt Market After SVB Collapse
by hedora on Tuesday March 21, 2023 @11:35AM
(#35247701)
Higher interest rates (for subsidized loans) should lead to lower inflation, since it is analogous to the government printing less money.
Re:Anxiety Strikes $8T Mortgage-Debt Market After SVB Collapse
by jjeaff on Tuesday March 21, 2023 @12:44PM
(#35248807)
Instead of a 5 year loan you just save up to buy a house? I suppose this is just a hypothetical?
Because even when interest rates were high, people were not generally buying their homes in cash.
That's like saying instead of renting for years you could just save that rent money and buy a house after a few years.
And with low rates, no one was buying a house with just a 5 year mortgage either.
The only reason you are seeing a lot of cash buyers right now is that you have lots of people who have sold their homes at inflated prices after buying years ago at near nothing and now that prices are falling, they have the cash to buy. But that won't last and it will soon be back to only the small group of people with very big incomes or family money and investment firms that are buying in cash.
In two extremes: Imagine a market with 20% interest rates. You could just save money instead of holding the loan for 5 years, and then pay cash. Fewer people would have mortgages.
Imagine 0.1% fixed, interest-only loans. Financing a house with that would cost about 1/200th as much as in the 20% environment, so prices would increase by something like 200x.
We are coming out of ~2% rates. That means houses should cost a bit under 10x more than they would at 20%. If you put 20% down, you could probably have purchased outright in the other environment.
(This ignores the possibility of new construction, since I live in California, and that’s more realistic than saying people will be allowed to build housing to take advantage of low mortgage rate arbitrage).