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12% interest rates didn't kill the market much in the early 80s, why would 7% do so now?
Are banks the only source of mortgage funds, or are there other entities interested in making money off of current rates?
Although the interest rates were high, the home prices were not. In the 80's, my then husband and I bought a home and financed it with a high interest rate loan. We refinanced the loan as the rates dropped, and eventually sold the home, at a decent profit, 15 years later.
I think that a couple of points should be made to, perhaps, help explain what may seem to be a contradiction.
First, there is NO "real estate market". Rather, there are thousands of real estate markets (plural) around the country. Each market has its own characteristics which may be quite different from other markets.
Second, the unusually low interest rates on real estate loans for the past decade have led to many people purchasing housing at prices they couldn't otherwise afford if the rates had been higher. In other words, house prices and interest rates tend to have an inverse relationship.
No one has a crystal ball on what interest rates are going to do, but if rates continue to trend toward the norm, then we can expect rates to rise and house prices in general to fall. How this affects any particular individual will depend largely on which of the thousands of real estate markets they are in. I happen to think that most of the markets in the country are going to trend toward the norm/median for the country. In other words, if you're in a low-priced housing market, I think your market will likely trend higher. Similarly, if you're in a high-priced housing market, I think your market will likely trend lower. That's my view. You can take if for what it's worth.
Well that scenario was what I was banking on here. Our neighbors sold their house in hours after multiple officers and $25k over asking. We were all shocked. I was hoping to get it for our Indian friends but it went $75k over what we thought it should go for. Our inventory is low and the Chicago people are flocking here now. They have discovered what a gem this place is. We are cheaper than Chicago prices, but it looks like that's changing.
I think we are in a bubble too. We bought the condo together at just the right time. It will be 100% paid for and 100% theirs next month. Their restaurant is doing very well. They will be debt free and living in a reasonable place. I think they're better off right where they are now for awhile. I'll get them in this village some day.
I think that a couple of points should be made to, perhaps, help explain what may seem to be a contradiction.
First, there is NO "real estate market". Rather, there are thousands of real estate markets (plural) around the country. Each market has its own characteristics which may be quite different from other markets.
Second, the unusually low interest rates on real estate loans for the past decade have led to many people purchasing housing at prices they couldn't otherwise afford if the rates had been higher. In other words, house prices and interest rates tend to have an inverse relationship.
No one has a crystal ball on what interest rates are going to do, but if rates continue to trend toward the norm, then we can expect rates to rise and house prices in general to fall. How this affects any particular individual will depend largely on which of the thousands of real estate markets they are in. I happen to think that most of the markets in the country are going to trend toward the norm/median for the country. In other words, if you're in a low-priced housing market, I think your market will likely trend higher. Similarly, if you're in a high-priced housing market, I think your market will likely trend lower. That's my view. You can take if for what it's worth.
A wise take in my opinion. All real estate is local and certain markets will behave against the macro trend. People also get used to things. The sharp, quick rise in interest rates was a shock to many, but I personally don't think they're coming down soon and anyway, stability is possibly a more important factor. People adjust. I know a couple families actively looking right now, and they're certainly not happy about it, but the pressure of having outgrown their current houses is greater than the unhappiness with rates and prices.
Location: Formerly Pleasanton Ca, now in Marietta Ga
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Originally Posted by rkcarguy
Thank you. In 2008 we saw this, people hugely upside down walked away from their homes. And, rates and prices were not as high as they are now. Financing falls through on sale after sale...the bank losses coupled with far fewer mortgages being inked is going to add up. I'm not saying the market isn't silly, normalization of prices is needed, but 7% is just too high, gonna kill the housing market and the banks.
You do realize that over time 7 percent is pretty low. I had 18 % on three homes before.
Location: Formerly Pleasanton Ca, now in Marietta Ga
10,346 posts, read 8,563,021 times
Reputation: 16684
Quote:
Originally Posted by drro
In Europe(Germany, Italy, the Netherlands), house prices are dropping already significantly because of the increased interest rates and credit tightening despite a housing shortage and a shortage of land to build on. Everybody was saying prices never could or would drop. This time would be different …
I’m surprised this is isn’t happening in the US yet. Maybe it is happening already but realtors, sellers and the media are still in denial. I also believe we will see a 2008 or worse level crash. Our friends house dropped 20% in asking price and still won’t sell while last year people were overbidding on similar homes with last years inflated asking prices. New listings are on the market for 33% under last years asking prices and these actually do sell.
Where is your market. Not seeing this here in my area. I don’t believe it’s denial. Just as you say the media is lying, ever occur to you they are fear mongering the get attention? Having living through the last crash I don’t see this happening again. Too many people are sitting on super low interest loans with tons of equity.
If it were to happen I’d be buying a lot of real estate but it’s not. I’m just sitting here waiting for you chicken littles to be right so I can pounce but it’s not happening.
You do realize that over time 7 percent is pretty low. I had 18 % on three homes before.
So did my parents and grandparents, but that was on homes that cost $22,000-$28,000, not $600,000.
Even 2008 was different because it followed good times, instead of following a pandemic that has already drained government coffers.
Thank you. In 2008 we saw this, people hugely upside down walked away from their homes. And, rates and prices were not as high as they are now. Financing falls through on sale after sale...the bank losses coupled with far fewer mortgages being inked is going to add up. I'm not saying the market isn't silly, normalization of prices is needed, but 7% is just too high, gonna kill the housing market and the banks.
The '08 'crash' was brought abut by an entirely different scenario, like everyone that could breath getting a loan....
And 7% is not really a high interest rate, not historically anyway, it's all just about the specific home and budget of the buyer. First home I bought came with a 17.5% loan.....didn't even think about it. Could I afford it? Did I want the house badly enough? Yes and Yes. Done.
So did my parents and grandparents, but that was on homes that cost $22,000-$28,000, not $600,000.
Try comparing apples to apples. Housing prices have gone up, but so has income. Relatively speaking, it's all the same....
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