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by rrrrrrrrrrrryan 1757 days ago
This logic doesn't hold in all housing markets.

In California, people generally buy the absolute most house they can possibly afford. Houses are extremely expensive and people don't want to live in shacks, so they stretch their budget as far as they can. Home prices in these markets are extremely sensitive to changes in interest rates, as you've described.

However in other markets, interest rates can wiggle up and down without having as dramatic an effect on prices, because livable homes aren't as expensive and people have more slack in their budgets.

In markets with lots of cash buyers, home prices may also be somewhat isolated from interest rate swings.
1 comments
100-xyz 1757 days ago
Sincere question - can you point me to such markets where interest rates can wiggle up and down without having as dramatic an effect on prices?
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rrrrrrrrrrrryan 1757 days ago
I worked in the mortgage industry for a couple years, and it was common knowledge there that California home prices were the most tightly coupled with interest rate changes.

I'm not sure which markets are at the opposite end of the spectrum, but you could probably get a good idea by looking at the ratios between median household income vs. median mortgage payment in any given market. Households (currently) spending a smaller fraction of their paycheck to pay their mortgage should be able to better absorb some price increases.

According to this visualisation on Zillow[1], California is indeed the worst. The median household in San Jose would have to allocate 53% of their income to pay a median mortgage, compared to the national average of 17.5%:

[1] https://www.zillow.com/research/q2-2018-affordability-21286/

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maxerickson 1757 days ago
In lots of smaller towns, lots of decent houses are priced at 3x an okay annual salary.

Interest rates have less impact on that price than houses that are priced at 10x annual salaries.

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coryrc 1757 days ago
I can't, but as prices go lower more people can just save money rather than borrow to purchase. So an exponential curve, the higher the rate the smaller the effect on asset price.
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