[chiefalchemist]

> For more than a decade homeowners benefited from ultra-low interest rates.

Homeowners benefit from higher prices? How does that work?

Low interest rates increase demand. Increased demand increases price. Higher prices mean a larger initial payment (i.e., 20% down). Higher prices typically mean higher assessed value (i.e., higher property taxes). These benefit homeowners how?

Ultimately, it's about the total cost of the mortgage. That is the price of the home. The closing price is an illusion.

Finally, a higher interest rate can always be refinanced in the future. The higher rate gives you a lower closing price. The re-fi lowers the total cost of the mortage.

[CalRobert]

I'm a homeowner. If my house goes up in value it gives me an asset I can sell when I need to buy a different home (a benefit a renter doesn't have). It can even mean I sell my expensive home here and retire somewhere cheap.

Also, where I am, I can enjoy the capital gain on my home tax free. Even in the US, if you're married you only have to pay CGT on appreciation over 500k.

And, of course, it means that I have collateral and can take out a Home Equity Line of Credit if I need to.

The one downside is property tax, of course, but in some places property taxes are kept low - CA has prop 13, which means existing residents might have very low property taxes while new entrants have astronomical taxes, and in Ireland (where I am) property tax is so low as to be effectively 0.

Also, don't discount the high people get from feeling like they're rich.

Edit: I forgot!! You can also use your expensive home as a retirement fund via a reverse mortgage, sometimes called a "lifetime loan", etc. - Basically you sell your house, get the cash, but can live in it until you die. This is pretty useful if you're a retiree who doesn't have enough savings.

[chiefalchemist]

> If my house goes up in value it gives me an asset I can sell when I need to buy a different home (a benefit a renter doesn't have). It can even mean I sell my expensive home here and retire somewhere cheap.

Yes. But for the most part prices are relative. Your house increases. So does the move to house.

Higher price...insurace is more costly. Property tax...more costly. More capital gains (from a sale)...more CG taxes to pay.

You're generally correct. What you didn't factor in is all these things are relative. About the only way to win is to buy when mortgage rates are high (and closing prices lower) and then refi later. This will more or less cheat the relativeness of home prices.

Using cheap money to drive up price is a false god. It's a pyramid scheme. It's a - pardon the pun - house of cards. And now we're about to learn this. Sadly, again.

[CalRobert]

I'm on the same page but that was kind of my point. Say I buy a house in 2010 for 100k. In 2022 my house is worth 300k. Now say I want to move to a similar house next door that went through similar price changes. It likely went through the same appreciation. It's a lot easier for me to buy that house when I've got the equity in my own then if I'd been renting the whole time.

And to the prop tax and cap gains notes - we distort things by giving people carveouts for property tax (note Prop 13 in California) and not charging capital gains taxes on houses, at least below a certain limit (250/500 single/married in the US, for instance)

[chiefalchemist]

Buying v renting. That's a different discussion.

But now that you brought it up...renters might not have equity but have you balanced equity against taxes, time and cost of maintenance, etc.*

Again, these are costs too often not considered. Too many people falsely quote their closing prices as what they paid for their home. Nah. That's the total cost of mortgage + taxes + insurance + time & cost of maintenance, etc. That's the full understanding of the costs.

* of course there are community and family reasons for owning. But that stability can be an anchor. WFH is changing that for knowledge workers. But what if you can't WFH and your type of work is not growing in your area. With ownership you can't pickup and move.

The topic has nuance and can be complicated. It's not the simple model banking and real estate sell, that much is true.

[ivanbakel]

A lot of the downsides you listed apply to house-buyers, not homeowners. If you already have a property, deposit size doesn't matter to you. Price increases are only a positive - it's the bank that's losing out.

While you may pay more in property tax, I'm sure the savings on your mortgage interest more than offset any tax increases.

[lotsofpulp]

I would expect that more likely than not, the same dynamics allowing the interest rate to be low also cause the purchasing power of the currency to decrease. A homeowner not able to increase their income to offset this decrease in purchasing power may be experiencing a net loss of purchasing power even if their mortgage interest costs decrease.

[ivanbakel]

In a developed service-based economy, relative purchasing power isn't that important in the short term. You might eventually notice the indirect impact of imports being more expensive, but I doubt that matters too much to the average person.

You also have to account for the fact that house prices are rising - so even if you're losing purchasing power, you're still making nominal gains on your assets.

[lotsofpulp]

What is relative purchasing power?

In an economy where supply of labor is decreasing quicker than automation can replace it due to decreasing proportion of younger working people to older non working people, I would say being able to procure labor is a bigger problem than imports. And that will get harder if your cash flow buys less and less.

[chiefalchemist]

Bingo! Inflation!!

That too must be factored in. Cheap printed money === inflation

[chiefalchemist]

But...it's house-buyer driving up all prices (in a neighborhood). Give it a couple of months. See how many homeowners are bragging about the loss in value of their homes. Let's see how that plays out in Nov.

[smeej]

Low interest rates mean more of the payment builds equity, which you have a higher chance of getting back when you sell ("higher" as in "not zero," since you definitely don't get any interest payments back when you sell).

You can also borrow against that equity, but definitely not against the interest.

The amount you pay for the house might be the same whether it's the sticker price or the interest rate that was higher, but what that does for your overall wealth is different, and lower interest rates are better.

[chiefalchemist]

You left out how demand increases price, and in turn the total cost of the mortgage. Calculating your equity is relative to those. It's not as absolute as you think it is.

[foogazi]

>> For more than a decade homeowners benefited from ultra-low interest rates.

>Homeowners benefit from higher prices?

Homeowners benefit from being able to refinance while rates go down: essentially the last 50 years

> Finally, a higher interest rate can always be refinanced in the future.

If rates are lower and you have equity and still qualify for a loan