Why do we NEED low mortgage rates?
invite response
2022 Jun 17, 7:16am 1,385 views 19 comments
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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.”"