[bluGill]

Also no discussion of interest rates - I bought my house just a few years ago at just under 3%, today I would be paying more than 6% - I couldn't afford the payments if I refinanced. I believe that interest rates are the primary driver of less construction: people who want to buy can't afford to unless they downsize.

[andsoitis]

> I bought my house just a few years ago at just under 3%, today I would be paying more than 6%

Yes, the cost of money (interest) was cheaper a few years ago. But the cost of money has gone up, primarily because central banks are also managing inflation by making borrowing more expensive.

[scotty79]

But you need higher interest rates to offset the risk if your collateral might not appreciate.

[kjkjadksj]

3% change really breaks your budget? Higher rates generally mean lower home prices anyhow making the effective mortgage rate more similar than anticipated.

[bluGill]

Percentages don't work like this. It isn't a 3% change in rate, it is a doubling of the rate, and that will break the budget. You can find mortgage calculators to run whatever numbers you want, but it is hard to find any realistic scenario where it is less than $500/month, and for many over $1000/month. That amount of money will break any budget.

I expect home prices to go down long term if interest rates remain as they are. However home prices are a lagging indicator and so it will take years for the interest rate changes to cause that change. (and over those years other things will happen meaning we will never be able to figure out how much change is because of rates and how much because of other factors)

[ted_dunning]

Percentages don't work like that, either. Since buyers are mostly bound by available monthly budget, raising interest rates increases effective price, which lowers demand at a particular price point which drives total purchase price back down to get the monthly mortgage price closer to affordable.

Obviously, this feedback isn't entirely effective because buyers can simply opt out or delay a purchase but it does have substantial effect.

Thus, increasing interest does not have the full impact as predicted by assuming that purchase price is fixed.

[iJohnDoe]

6%-%7 is crazy high at today’s high home prices. Yes, it’s accurate that someone couldn’t afford their current house at today’s interest rates.

Today’s interest easily shave off about $100k+ in what people can afford.

People won’t sell because they can’t afford to move anywhere unless they take their equity out of state to a lower cost of living.

People not selling means lower inventory. Only desperate people will buy now because they have no choice (relocation etc.)

Raising interest rates is the easiest way to fuck things up. We’re in this for the next 5-6 years.

[gedy]

> Higher rates generally mean lower home prices

It hasn't so far, though yes it should and eventually will imho.

People I know tend to get ass in deep with debt will little room for error, and doubling interest on a mortgage would certainly push many over the edge of "affordability"

[Der_Einzige]

The whole point of high interest rates is to get your economy unaddicted to cheap money and force economic efficiency.

This is why Trump is so angry about high interest rates and has threatened to fire powell again and again over it.

[bluGill]

I would not call 6% high - I'd call it normal, maybe even low-normal. 3% was low, and done at a time when stimulating the economy was thought important enough to accept the consequences. However we are not facing the fallout of rates going back up.

[marcosdumay]

Well, literally the point is to stop banks from taking as many loans and force them to keep more deposits at hand to cover withdraws.

But yeah, getting the economy unaddicted to ZIRP is a good side-effect that the US will get if they manage to keep it all the way through the withdraw phase.

[dragonwriter]

> The whole point of high interest rates is to get your economy unaddicted to cheap money and force economic efficiency.

No, the point of high interest rates is to slow inflation; its part of the Fed’s thermostatic response to changes in the employment and inflation landscape.

It’s not an swift radical ideological change from the same Fed board with largely the same members that also implemented low rates not long ago. Its changed external conditions leading to the same kind of response the Fed tends to make to the same kind of condition changes historically.