Mortgage interest rates at 12 year high > 5%

[Tangler]

https://amp.cnn.com/cnn/2022/04/21/h...-21/index.html

5.11% 30 year fixed, highest in 12 years.

Thoughts?

Will this cool the market?

[SpacemanSpiff12]

1) It’s wild that less than a year ago I was able to refi into a 2.49% 15yr mortgage, and now rates have more than doubled. The pace of change is unreal.
2) I was listening to a podcast the other day where they described that when rates start to increase, often the house market gets paradoxically hotter, because potential homebuyers think “I need to buy *now* before rates go even higher.”

I have to imagine there’s a limit on this effect and we’ve reached it. Even with limited housing supply, more money sloshing around in the system, etc. it seems like the market has to cool off with rates at >5%. Who knows though…

[Nysoz]

It depends on who's buying the houses. PE funds buying homes as investments or flips are the ones really driving the market higher I think, then first time homeowners FOMO'ing into the market secondarily.

As mortgage rates go up, monthly payments go up. Wages haven't increased that much in the same time frame. There's going to be some point where a normal family can't afford monthly payments of higher mortgage rate and the home prices that keep going up. If they're the ones driving the market, then RE will cool off. If PE firms are the ones buying, then it'll just keep going up until they run out of money or risk/reward doesn't make sense anymore.

I personally think we'll see 8%+ rates in the next year or 2 if there's no recession.

[Zaphod]

https://amp.cnn.com/cnn/2022/04/21/h...-21/index.html

5.11% 30 year fixed, highest in 12 years.

Thoughts?

Will this cool the market?

Likely will cool mortgage apps, but there is so little inventory it will likely cause initial FOMO and there are just so many people buying with cash that it doesnt matter for them at all.

It should soon though, thankfully, this has been an unhealthy market for too long.

[White.Beard.Doc]

It will take a few months for all of this to shake out.

Another aspect to consider is move up buyers staying put where they are due to their reluctance to trade a 3% mortgage on their current home for a high interest mortgage if and when they decide to move. This further constricts inventory. Investor purchases of homes for rent, although this is only a modest component of the market, also add to the demand side.

Rising mortgage rates will put some degree of downward pressure on home prices. But at the same time, lack of inventory will continue to put upward pressure on prices. The devil is in the details of household formation and as a result, the level of demand. Rising wages and full employment do support new household formation. And then there is also an expected increase in immigration.

Upward price pressure should moderate on homes for sale, but this effect is likely going to be quite variable in different areas. I think rents will continue to show very strong growth. I am currently seeing 10-25% growth in rents in the markets where I own property, outside the sun belt.

[Brains428]

Inventory still low, demand still high.

Houses above the median here have sat on the market for much longer than they used to. Initial listing price matters more now than it did a year ago. Local market dynamics matter, so YMMV.

[wideopenspaces]

We were dummies who didn't know any better and bought our first home in med school in 2005. We had an 80/20 loan and the 80% loan had a 6-8% interest rate. The 20% loan was variable and it got up to 12% before we realized we could use med student loans at a fixed rate of 6% to pay that portion off. We got very lucky because the house was under 100k, med school in TX was pretty cheap and my husband was working but I say all this because quite frankly lots of people are financially illiterate, they just want a house and I don't think higher interest rates will do a ton to slow things down.

[Brains428]

Aren't some physician loans structured similar to an 80/20?

[Nysoz]

We were dummies who didn't know any better and bought our first home in med school in 2005. We had an 80/20 loan and the 80% loan had a 6-8% interest rate. The 20% loan was variable and it got up to 12% before we realized we could use med student loans at a fixed rate of 6% to pay that portion off. We got very lucky because the house was under 100k, med school in TX was pretty cheap and my husband was working but I say all this because quite frankly lots of people are financially illiterate, they just want a house and I don't think higher interest rates will do a ton to slow things down.

Higher rates = higher mortgage payment. If someone can afford $2000 a month for mortgage, that's a $400k mortgage @ 4%. Same payment would be a $320k @ 6% or $260k @ 8%.

At some point people buying homes just cant afford the payments.

[Tim]

Raising the cost for homes can only limit buyers that need a mortgage (most). Demand will shrink some. Both new construction and resale.

Macro housing is different than the local market.

https://mishtalk.com/economics/existing-home-sales-decline-again-but-the-big-bust-starts-next-month

[Tangler]

Higher rates = higher mortgage payment. If someone can afford $2000 a month for mortgage, that's a $400k mortgage @ 4%. Same payment would be a $320k @ 6% or $260k @ 8%.

At some point people buying homes just cant afford the payments.

This is my simple way of thinking about it. Most people I know only care about the monthly payment.

[StateOfMyHead]

Rates are still fairly reasonable for a fixed long term loan from what I’ve seen over the past 30 years. Americans are largely unwilling to delay gratification. My guess is they will continue to buy even if the market conditions aren’t favorable which will include pushing to their max budget because we also don’t believe in the need to start with a starter home anymore.

[StarTrekDoc]

Point of reference. Our first home in 2000 was 8%

[Tangler]

Point of reference. Our first home in 2000 was 8%

Same, but in 2000 the cost of the houses and of school (student loans) was a lot lower.

The cost of state University was around 2k per year in AL and the cost of my first home was 118k.

118k, bought my intern year......It was a really nice brick house with a great backyard and it was 5-10 min drive to hospital.

Now that same house would cost a lot more.

If we hit 8% interest rates very few will be able to afford these prices for the all important: "monthly payment" which is all most of the people I know look at.

I know when I was a dumb kid buying that house all I was worried about was paying that monthly bill and surviving my intern year.

[White.Beard.Doc]

My first home purchase was with a 10% mortgage. We refinanced every so often to get it down to around 8%, then 6.5%, then 5% until we paid it off. It was nice that our home expense steadily went down over the years that we lived there.

My best mortgage interest rate was on an investment property at 2.6%. At this moment with 8% inflation, I must admit that I unfortunately paid it off early.

My current best mortgage on an investment property is 2.75%. And my most recent mortgage on an investment property that closed earlier this month was at 4.25%. I must say that I will not be making any extra principal payments on these investment properties unless the future inflation rate drops precipitously. Time will tell.