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Why do we NEED low mortgage rates?
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2022 Jun 17, 7:16am 1,377 views 19 comments
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1
Bd6r
2022 Jun 17, 7:53am
Bd6r
2022 Jun 17, 7:53am
We don't, I would rather have high mortgage rates and low RE prices. Less money to Realtors(TM) and lower tax bill.
2
ForcedTQ
2022 Jun 17, 8:21am
And, encouraging to the mortgagee to pay the damn note off as fast as you can. Interest is only charged for the life of the note, Taxes are forever…
3
clambo
2022 Jun 17, 8:24am
High mortgage rates like high taxes divert money away from true investments which are capital used to grow businesses and the economy.
4
NDrLoR
2022 Jun 17, 8:30am
NDrLoR
2022 Jun 17, 8:30am
WineHorror1 says
I survived 12-3/4% mortgage rate for 20 years when I bought my condo at 6463 Bordeaux, 75209, at the end of 1980. I was lucky to get a fixed rate at the time. Many people had to get ARM's that exploded after five years and they lost their property. I saved over $20K by financing it for 20 instead of 30 years. We figured the payments and the difference was less than $20 a month for 20 vs. 30 years.
The world can't survive 9% interest rates?
5
RC2006
2022 Jun 17, 8:56am
RC2006
2022 Jun 17, 8:56am
Higher rates lower home values = less property taxes. If we are just talking about mortgage payment that stay about the same, then those that need property taxes are going to take the hit the most.
6
Tenpoundbass
2022 Jun 17, 9:04am
Tenpoundbass
2022 Jun 17, 9:04am
I love high interest rates, it keeps the producers honest, punishes the reckless borrowers, and rewards the savers with affordable goods.
The producers base their price on what ever the reckless borrowers will pay for their goods. Even if that means 3000% mark up on goods, as long as the dumbfuck borrowers will buy it on credit, that's what they will sell it for. Unfortunately those who like to save up and pay cash, have to pay the same amount as the dumbfucks.
High interest rates also rewards savers, as lenders have to pay higher benchmark rates, they will look to lending out Bank Customers money, and paying them back interest, if that becomes the norm. Savers haven't been getting jack shit for their money in savings, because it's been too cheap for them to get free money from the feds.
The producers base their price on what ever the reckless borrowers will pay for their goods. Even if that means 3000% mark up on goods, as long as the dumbfuck borrowers will buy it on credit, that's what they will sell it for. Unfortunately those who like to save up and pay cash, have to pay the same amount as the dumbfucks.
High interest rates also rewards savers, as lenders have to pay higher benchmark rates, they will look to lending out Bank Customers money, and paying them back interest, if that becomes the norm. Savers haven't been getting jack shit for their money in savings, because it's been too cheap for them to get free money from the feds.
8
Hircus
2022 Jun 17, 10:08am
Hircus
2022 Jun 17, 10:08am
I suppose banks might like low rates because
- makes a home a bigger ticket loan, of which they get a slice of
- I think low rates, even if the rates arent falling, will result in more home price appreciation, which is good for cases when they repo.
- makes people more likely to borrow since the debt service is lower
I'm not sure if they overall perform better with lower or higher rates. I know I've heard they make loot in a rising rate environment due to profiting from an increasing spread, but thats an increasing interest rate, not necessarily a high interest rate.
- makes a home a bigger ticket loan, of which they get a slice of
- I think low rates, even if the rates arent falling, will result in more home price appreciation, which is good for cases when they repo.
- makes people more likely to borrow since the debt service is lower
I'm not sure if they overall perform better with lower or higher rates. I know I've heard they make loot in a rising rate environment due to profiting from an increasing spread, but thats an increasing interest rate, not necessarily a high interest rate.
9
zzyzzx
2022 Jun 17, 10:43am
zzyzzx
2022 Jun 17, 10:43am
RC2006 says
If home values drop, they will just raise the property tax rates.
Higher rates lower home values = less property taxes. If we are just talking about mortgage payment that stay about the same, then those that need property taxes are going to take the hit the most.
If home values drop, they will just raise the property tax rates.
10
stereotomy
2022 Jun 17, 10:47am
stereotomy
2022 Jun 17, 10:47am
WTF happened to 5-8% mortgage rates that existed from post WWII until the naughties (00's)? Answer - epic financial and political corruption.
11
Patrick
2022 Jun 17, 10:52am
Patrick
2022 Jun 17, 10:52am
I think the Fed realizes that most houses are quite overvalued relative to renting the same thing on the coasts, and that rising interest rates will drive down the imaginary collateral that banks think they have with current prices.
When a lot of people are underwater, they will ditch the house and the loan, like they did in the last housing bubble.
The banks may then be technically bankrupt, with less collateral than outstanding loans. The Fed will once again have to print its way out of that, and inflation will surge yet again.
When a lot of people are underwater, they will ditch the house and the loan, like they did in the last housing bubble.
The banks may then be technically bankrupt, with less collateral than outstanding loans. The Fed will once again have to print its way out of that, and inflation will surge yet again.
13
RC2006
2022 Jun 17, 11:20am
RC2006
2022 Jun 17, 11:20am
Perhaps, but with how high rents are I'm not sure. Even if one goes underwater it still might be cheaper to pay mortgage that was locked in under 4%.
14
stereotomy
2022 Jun 17, 11:27am
stereotomy
2022 Jun 17, 11:27am
Renting should be more expensive than owning, but it's not. It hasn't been true for two decades. Homeownership has continuing costs that renters don't have to deal with: Insurance (property and liability), maintenance (1% a year, more in bad climates), escalating property taxes (except for those in sunny Prop 13 land).
For those of you who say that "but the renter ends up paying for these anyway in their rent," that is not true either, especially if you don't bend over and rent from a corporation or a poor landlord. Well-off landlords are more concerned with property/capital preservation, and they will rent under market to mature and responsible tenants who can properly curate their property.
I think @Patrick would agree. I still rent. My very good friend has sunk close to $200K in the house he bought for over $200k eight years ago. He borrows to make "improvements." l pay cash up front for what I need. He makes over 3X what I do, but has less than 5% of what I've stockpiled as liquid assets.
For those of you who say that "but the renter ends up paying for these anyway in their rent," that is not true either, especially if you don't bend over and rent from a corporation or a poor landlord. Well-off landlords are more concerned with property/capital preservation, and they will rent under market to mature and responsible tenants who can properly curate their property.
I think @Patrick would agree. I still rent. My very good friend has sunk close to $200K in the house he bought for over $200k eight years ago. He borrows to make "improvements." l pay cash up front for what I need. He makes over 3X what I do, but has less than 5% of what I've stockpiled as liquid assets.
15
ForcedTQ
2022 Jun 17, 11:30am
Rents will have the limiter of how much money people can spend per month as well. Once demand at a certain price point can’t be sustained, if the landlord wants to rent the property the monthly charge will have to drop….
16
Eric Holder
2022 Jun 17, 11:35am
Eric Holder
2022 Jun 17, 11:35am
stereotomy says
These still escalate, just at a slower pace.
escalating property taxes (except for those in sunny Prop 13 land).
These still escalate, just at a slower pace.
17
AD
2022 Jun 17, 12:44pm
AD
2022 Jun 17, 12:44pm
Patrick says
Yes, the Federal Reserve is composed of "member banks". They are the ones who "control" the Federal Reserve. For example, the Federal Reserve Bank of Atlanta's board included or includes the CEO of Trustmark Bank (a regional bank in the southeast).
I agree as higher mortgage rates will depress home values. They should have gradually increased interest rates. But the volatility in the 30 year mortgage rate is surreal. It went from around 2.5% to now 6.1% in about 6 months :-(
When a lot of people are underwater, they will ditch the house and the loan, like they did in the last housing bubble.
The banks may then be technically bankrupt, with less collateral than outstanding loans. The Fed will once again have to print its way out of that, and inflation will surge yet again.
Yes, the Federal Reserve is composed of "member banks". They are the ones who "control" the Federal Reserve. For example, the Federal Reserve Bank of Atlanta's board included or includes the CEO of Trustmark Bank (a regional bank in the southeast).
I agree as higher mortgage rates will depress home values. They should have gradually increased interest rates. But the volatility in the 30 year mortgage rate is surreal. It went from around 2.5% to now 6.1% in about 6 months :-(
18
GreaterNYCDude
2022 Jun 17, 1:00pm
It's not the rate it's the rate of acceleration. We almost doubled the rate in 6 months. That will put the breaks on the housing market, auto loans, and other credit based expenditures. People will stop or decrease spending and demand will wane. The hope is that the supply chain, which can stop on a dime but not restart as quickly, will catch up. In reality there are more scenarios where this ends badly than not. A "soft landing" will be difficult to engineer.
Personally I think higher rates are a net positive (see my post return to normalcy) but the fed is once again doing too little a tad too late.
Personally I think higher rates are a net positive (see my post return to normalcy) but the fed is once again doing too little a tad too late.
19
AmericanKulak
2022 Jun 17, 1:16pm
AmericanKulak
2022 Jun 17, 1:16pm
Bd6r says
Yep.
And many of those bulk subdivision buy outs are cash, but cash from borrowing at low interest rates by big actors from banks and investors..
We don't, I would rather have high mortgage rates and low RE prices. Less money to Realtors(TM) and lower tax bill.
Yep.
And many of those bulk subdivision buy outs are cash, but cash from borrowing at low interest rates by big actors from banks and investors..
"Heading into this spring, the Federal Reserve decided it had seen enough. The central bank quickly raised interest rates, which saw the average 30-year fixed mortgage rate climb to 6%—up from 3.2% at the start of the year. Those higher rates, which have priced out many home shoppers, ultimately ended the pandemic housing boom. Now we’re in a sharp slowdown, with the Mortgage Bankers Association reporting on Wednesday that mortgage applications are down 16% on a year-over-year basis.
As this shift occurred, we heard very little from the Fed. Well, that was until chair Jerome Powell addressed reporters on Wednesday.
Here’s what Powell had to say: “We saw [home] prices moving up very very strongly for the last couple of years. So that changes now. And rates have moved up. We are well aware that mortgage rates have moved up a lot. And you are seeing a changing housing market. We are watching it to see what will happen. How much will it really affect residential investment? Not really sure. How much will it affect housing prices? Not really sure. Obviously, we are watching that quite carefully…It’s a very tight market. So prices might keep going up for a while, even in a world where rates are up. So it’s a complicated situation and we watch it very carefully. I’d say if you are a homebuyer, somebody or a young person looking to buy a home, you need a bit of a reset. We need to get back to a place where supply and demand are back together and where inflation is down low again, and mortgage rates are low again.”"