Pay over Time

[tgrundke]

Originally Posted by Donatello.

These retard high interest rates only help the rich & big companies. They hurt the average American.

Mortgage rates averaged 7.5% between roughly 1970 and 2008.
They were over 16% in 1981.

Rates have been in a cyclical decline since 1982, and we're headed into a period of elevated interest rates for longer. Much longer. I'd expect that 5% - 8% will become the norm for the foreseeable future.

Auto loan rates averaged around 9% throughout the '90s, and up until the financial bust in 2008 they were between 6.75 - 7.5%

My point being: 0% (ZIRP) was an anomaly and mistake that created a lot of downstream ramifications.

Higher ("normal") interest rates help the average person because it forces price discovery that makes things like houses and cars more affordable. It significantly reduces big speculative bubbles and it makes everyone more cautious in how they use money. Higher rates incentivize low risk saving. Low rates incentivize spending.

Low interest rates mask problems until they hit a crisis.

[Donatello.]

Originally Posted by tgrundke

Mortgage rates averaged 7.5% between roughly 1970 and 2008.
They were over 16% in 1981.

Rates have been in a cyclical decline since 1982, and we're headed into a period of elevated interest rates for longer. Much longer. I'd expect that 5% - 8% will become the norm for the foreseeable future.

Auto loan rates averaged around 9% throughout the '90s, and up until the financial bust in 2008 they were between 6.75 - 7.5%

My point being: 0% (ZIRP) was an anomaly and mistake that created a lot of downstream ramifications.

Higher ("normal") interest rates help the average person because it forces price discovery that makes things like houses and cars more affordable. It significantly reduces big speculative bubbles and it makes everyone more cautious in how they use money. Higher rates incentivize low risk saving. Low rates incentivize spending.

Low interest rates mask problems until they hit a crisis.

So higher rates makes things more affordable? lmfao. No.
Tell me, how are cars (The average car payment is over $700 right now) and houses (Anyone with half a brain can see the prices are nuts) are so affordable fight now. I'll hold.........

[David70]

Originally Posted by tgrundke

Mortgage rates averaged 7.5% between roughly 1970 and 2008.
They were over 16% in 1981.

Rates have been in a cyclical decline since 1982, and we're headed into a period of elevated interest rates for longer. Much longer. I'd expect that 5% - 8% will become the norm for the foreseeable future.

Auto loan rates averaged around 9% throughout the '90s, and up until the financial bust in 2008 they were between 6.75 - 7.5%

My point being: 0% (ZIRP) was an anomaly and mistake that created a lot of downstream ramifications.

Higher ("normal") interest rates help the average person because it forces price discovery that makes things like houses and cars more affordable. It significantly reduces big speculative bubbles and it makes everyone more cautious in how they use money. Higher rates incentivize low risk saving. Low rates incentivize spending.

Low interest rates mask problems until they hit a crisis.

Agree. While people complain that rates are at some extra ordinary high level, reality is we have had abnormally low rates over the last 14 years and this is closer to normal.

I bought my first house in 2000 at roughly 7% interest. At the time I was pretty happy with it.

[tgrundke]

Originally Posted by Donatello.

So higher rates makes things more affordable? lmfao. No.
Tell me, how are cars (The average car payment is over $700 right now) and houses (Anyone with half a brain can see the prices are nuts) are so affordable fight now. I'll hold.........

The price of cars and houses is a direct reflection of cheap money and easy financing, both of which create more demand, which leads to price increases.

On mortgages, rate increases have decreased affordability - but that doesn't mean that the underlying price was good to begin with. Anyone with half a brain can see that you're buying into a bubble when median home prices jump from $280k to $450 in the span of 18 months.

[zx10guy]

Originally Posted by Donatello.

You are not in the same boat if you own TWO homes.

Also, should no one buy a home again? Different times.

With that said, I know the current rates & market are stupid artificially inflated. Clearly not sustainable. The bubble will burst. When? We don't know.

These people paying over asking for average homes and not doing inspections etc = idiots

Not sure what you mean by saying I'm not in the same boat. I'm not comparing myself to others buying now. I have to say I've been lucky with my timing. I bought my primary home before the big housing bubble when prices shot through the roof in 2001. I bought my vacation home in 2012 before housing prices started to shoot up again and when the interest rate environment was favorable prior to the massive money dump that has happened recently.

There's no way I'd be buying a second home or a third now if I haven't already bought my second home. Prior to rates shooting up, I asked about refinancing my second home's mortgage when I refinanced my primary home. The broker I went through said no way they'd be able to touch the 3.25% rate. She said mortgage rules had changed where second homes get hit with a higher rate over primary homes. So right now I'm "stuck" in both homes. There's no incentive for me to sell my primary to get into a significantly higher interest rate even though I have a ton of equity in my primary. There's no incentive for me to sell my second home to get into another one either as the rates would be even higher. The higher mortgage rates are also causing problems with housing supply because people such as me won't put our homes on the market.

I guess I could just dump my second home to capture the gains and cash out. But currently, I don't have any incentive to do so as my mortgage rate is low and I'd be taking it up the rear without lube more so than I am now with taxes with the gains I have with that property.

[zx10guy]

I agree the low interest rates everyone has gotten used to has been abnormal. But is it really considered abnormal when we've been in that environment for a long time? Sort of a rhetorical question.

I think there's going to be movement to a balance with higher mortgage rates coupled with prices settling to more realistic levels. The other thing it'll do is to force people to really focus on the numbers to do things such as look at other locations, possibly take on roommates, etc. Or to save more to come up with more money down to lower the amount they borrow.

[ASAP]

Originally Posted by tgrundke

Mortgage rates averaged 7.5% between roughly 1970 and 2008.
They were over 16% in 1981.

Rates have been in a cyclical decline since 1982, and we're headed into a period of elevated interest rates for longer. Much longer. I'd expect that 5% - 8% will become the norm for the foreseeable future.

Auto loan rates averaged around 9% throughout the '90s, and up until the financial bust in 2008 they were between 6.75 - 7.5%

My point being: 0% (ZIRP) was an anomaly and mistake that created a lot of downstream ramifications.

Higher ("normal") interest rates help the average person because it forces price discovery that makes things like houses and cars more affordable. It significantly reduces big speculative bubbles and it makes everyone more cautious in how they use money. Higher rates incentivize low risk saving. Low rates incentivize spending.

Low interest rates mask problems until they hit a crisis.

We should have had higher rates since approximately 2016 or so when the economy was in full steam this would have prevented a ton of the speculation we saw... the fed was pressured into keeping rates low as the moment they started raising them, the markets immediately felt downward pressure... and of course no matter which admin is in the White House, their no1 priority is unemployment which they couldn't see tick up.

Then Covid came... and we had rates lowered further and later doused with a large supply of free money for a ton of corporations and individuals further skyrocketing inflation (in a supply constrained environment lol)... basically the past 5 years of economic policy has been fail after fail.

It would be STUPID for anyone in this thread to compare to anything historically because we have NEVER been in a situation like we are in now where there is a ton of money in the market, prices are at an all time high, inflation is still high and rates are at their highest for 20 years... this makes things very unaffordable for the middle class and even worse for those below that. So far the rising rates have only made things more expensive not less because little price correction has been seen on anything...

...oh and we will ABSOLUTELY go back to lower rates in due time... this country lives and breathes on cheap credit and endless quantitative easing... watch the stock market carefully... the moment it takes a 15% nose dive or more... be ready to refinance your home

[zx10guy]

Originally Posted by ASAP

We should have had higher rates since approximately 2016 or so when the economy was in full steam this would have prevented a ton of the speculation we saw... the fed was pressured into keeping rates low as the moment they started raising them, the markets immediately felt downward pressure... and of course no matter which admin is in the White House, their no1 priority is unemployment which they couldn't see tick up.

Then Covid came... and we had rates lowered further and later doused with a large supply of free money for a ton of corporations and individuals further skyrocketing inflation (in a supply constrained environment lol)... basically the past 5 years of economic policy has been fail after fail.

It would be STUPID for anyone in this thread to compare to anything historically because we have NEVER been in a situation like we are in now where there is a ton of money in the market, prices are at an all time high, inflation is still high and rates are at their highest for 20 years... this makes things very unaffordable for the middle class and even worse for those below that. So far the rising rates have only made things more expensive not less because little price correction has been seen on anything...

...oh and we will ABSOLUTELY go back to lower rates in due time... this country lives and breathes on cheap credit and endless quantitative easing... watch the stock market carefully... the moment it takes a 15% nose dive or more... be ready to refinance your home

I would add in the other factor which are institutional investors buying up properties as it made sense for them to invest there with how depressed the stock market has been for a while. Unless there is legislation or some sort of community ban on non individual purchasers buying property, I expect to see the supply issue get worse if/when the stock market tanks.

[ASAP]

Originally Posted by zx10guy

I would add in the other factor which are institutional investors buying up properties as it made sense for them to invest there with how depressed the stock market has been for a while. Unless there is legislation or some sort of community ban on non individual purchasers buying property, I expect to see the supply issue get worse if/when the stock market tanks.

it's honestly a fail all around...

the government put more fuel on the fire instead of-

1) limiting LLC and Corp purchases on housing

2) loosening zoning

3) incentivizing tax credits or some sort of subsidy for home builders to build more supply (i don't know anyone that wouldn't support that)

4) oh and here is a crazy idea... instead of giving everyone a 2% rate... why not discount the rate 3% points for 1st time home buyers to help affordability

5) 5% downpayment on homes? Why LOL? this should ABSOLUTELY not be allowed... other countries around the world would scoff even remotely at the idea

[zx10guy]

Originally Posted by ASAP

it's honestly a fail all around...

the government put more fuel on the fire instead of-

1) limiting LLC and Corp purchases on housing

2) loosening zoning

3) incentivizing tax credits or some sort of subsidy for home builders to build more supply (i don't know anyone that wouldn't support that)

4) oh and here is a crazy idea... instead of giving everyone a 2% rate... why not discount the rate 3% points for 1st time home buyers to help affordability

5) 5% downpayment on homes? Why LOL? this should ABSOLUTELY not be allowed... other countries around the world would scoff even remotely at the idea

Agree with points 1, 2, and 3.

There were first time homebuyer/where you buy programs. Not sure if some of those exist now. I was the beneficiary of one such program when I bought my first home back in 1999. The program I got into was part of the Community Reinvestment Act. The home I purchased qualified for the program. I don't remember if this was also only for first time homebuyers. What this program did was lower the down payment requirement to a minimum of 3%. I put down 5%. I was not required to pay PMI. And the rate I got was very reasonable at the time. I think I got a rate of 6.375. I did have to meet income and credit score requirements. I have to say this was the springboard I needed to get into real estate and contributed to where I am now with my two properties.

To me, the big challenge for first time homebuyers these days is to get that first home. But this is something to think about which many are not bring up. Not everyone should be homeowners. For many, renting makes more sense for them. It's this whole propaganda that everyone has to be homeowners. I would say no. Same thing with getting a college degree. Not everyone should be getting a college degree.

[ASAP]

Originally Posted by zx10guy

Agree with points 1, 2, and 3.

There were first time homebuyer/where you buy programs. Not sure if some of those exist now. I was the beneficiary of one such program when I bought my first home back in 1999. The program I got into was part of the Community Reinvestment Act. The home I purchased qualified for the program. I don't remember if this was also only for first time homebuyers. What this program did was lower the down payment requirement to a minimum of 3%. I put down 5%. I was not required to pay PMI. And the rate I got was very reasonable at the time. I think I got a rate of 6.375. I did have to meet income and credit score requirements. I have to say this was the springboard I needed to get into real estate and contributed to where I am now with my two properties.

To me, the big challenge for first time homebuyers these days is to get that first home. But this is something to think about which many are not bring up. Not everyone should be homeowners. For many, renting makes more sense for them. It's this whole propaganda that everyone has to be homeowners. I would say no. Same thing with getting a college degree. Not everyone should be getting a college degree.

Allowing a 5% down is doing EXACTLY what you're describing below... getting people into homes that don't have enough for a downpayment... that is arguably a factor and shuld tie directly into your income and credit score as part of the assessment. It means you are either buying outside of your price range or haven't done the due diligence of saving up... if you can't save up... well perhaps then you can't afford the home because you're just expecting to ride on free equity... that is how Fannie Mae nearly failed 15 years ago.

A lower interest rate just makes things more affordable and more money goes into the principal as opposed to feeding the margins on banks... not sure why we wouldn't favor that for folks that can truly afford a home, have a downpayment and good income. The problem with this is once you have the wealthy buying up 2nd and 3rd homes... which is why with every property you buy, your rate should go up progressively... it truly isn't that difficult. Otherwise you are just feeding a pointless asset bubble...

[tgrundke]

Prices are sky high right now primarily (though not exclusively) due to 15 years of artificially low interest rates and massive amounts of fiscal stimulus from 2020-2022.

You're 100% correct that rate increases are squeezing 2/3rds of the market. Keep in mind that cycles move slowly: there's a trigger event and then price re-discovery takes place...over time. During the 2008 bust home prices peaked in late 2006 and didn't bottom out until 2012.

We're not going to see a massive deflationary hit to housing prices like witnessed '07 - '12. What we will likely see over the next few years (barring a major economic shock) is the COVID pricing bubble slowly deflating to come back in line with the historical trend.

There's still about $4 trillion in excess liquidity and the Fed is on pace to drain about $1 trillion annually. So far, rate increases and quantitative tightening haven't collapsed the market. If anything, the stock market has flaunted the tightening. This tells the Fed they can keep rates elevated for longer.

I'm holding to my thesis that rates stay elevated for longer, and won't be cut unless there's a major systemic disruption. Rates may not need to be raised much beyond where they are now to achieve the goal, if the Fed maintains rate for an extended period.

Originally Posted by ASAP

We should have had higher rates since approximately 2016 or so when the economy was in full steam this would have prevented a ton of the speculation we saw... the fed was pressured into keeping rates low as the moment they started raising them, the markets immediately felt downward pressure... and of course no matter which admin is in the White House, their no1 priority is unemployment which they couldn't see tick up.

Then Covid came... and we had rates lowered further and later doused with a large supply of free money for a ton of corporations and individuals further skyrocketing inflation (in a supply constrained environment lol)... basically the past 5 years of economic policy has been fail after fail.

It would be STUPID for anyone in this thread to compare to anything historically because we have NEVER been in a situation like we are in now where there is a ton of money in the market, prices are at an all time high, inflation is still high and rates are at their highest for 20 years... this makes things very unaffordable for the middle class and even worse for those below that. So far the rising rates have only made things more expensive not less because little price correction has been seen on anything...

...oh and we will ABSOLUTELY go back to lower rates in due time... this country lives and breathes on cheap credit and endless quantitative easing... watch the stock market carefully... the moment it takes a 15% nose dive or more... be ready to refinance your home

[tgrundke]

Originally Posted by zx10guy

Not everyone should be homeowners. For many, renting makes more sense for them. It's this whole propaganda that everyone has to be homeowners. I would say no. Same thing with getting a college degree. Not everyone should be getting a college degree.

EXACTLY. The "everyone should own a home" mentality is a large part of what drove the 2008 crisis. Similar to "everyone should have a college degree".

I've owned my home for 20 years, it's paid off. I am continually amazed by the number of family and friends who ask us constantly, "when are you two moving to a newer/bigger/nicer place?"

Nope, no thanks. We're happy with what we have.

[tgrundke]

Originally Posted by ASAP

The problem with this is once you have the wealthy buying up 2nd and 3rd homes... which is why with every property you buy, your rate should go up progressively... it truly isn't that difficult. Otherwise you are just feeding a pointless asset bubble...

I'm interested to see what happens with the flood of recent short term rental owners and what happens to all of those properties: with more neighborhoods putting limits on STRs, saturation of the STR market in popular locations, etc., I suspect that we may see some upcoming forced selling of these properties

(I'm looking at you, Lake Tahoe market....)

[zx10guy]

Originally Posted by ASAP

Allowing a 5% down is doing EXACTLY what you're describing below... getting people into homes that don't have enough for a downpayment... that is arguably a factor and shuld tie directly into your income and credit score as part of the assessment. It means you are either buying outside of your price range or haven't done the due diligence of saving up... if you can't save up... well perhaps then you can't afford the home because you're just expecting to ride on free equity... that is how Fannie Mae nearly failed 15 years ago.

A lower interest rate just makes things more affordable and more money goes into the principal as opposed to feeding the margins on banks... not sure why we wouldn't favor that for folks that can truly afford a home, have a downpayment and good income. The problem with this is once you have the wealthy buying up 2nd and 3rd homes... which is why with every property you buy, your rate should go up progressively... it truly isn't that difficult. Otherwise you are just feeding a pointless asset bubble...

The loan program I mentioned is only for specific homes. While the townhouse I purchased as my first home was new construction, it wasn't at all super luxurious. For the area I purchased, it was towards the lower end of what was average there. I think I bought the house for $142k. I also had to have ample enough reserves in equaling about 3 to 6 months of mortgage payments.

As to the rates going up for second or additional homes for individual buyers, it's already happened.

[zx10guy]

Originally Posted by tgrundke

EXACTLY. The "everyone should own a home" mentality is a large part of what drove the 2008 crisis. Similar to "everyone should have a college degree".

I've owned my home for 20 years, it's paid off. I am continually amazed by the number of family and friends who ask us constantly, "when are you two moving to a newer/bigger/nicer place?"

Nope, no thanks. We're happy with what we have.

I've been in my primary home for coming up on 22 years. I don't have any desire to move either. The home isn't paid off as I preferred to take that money going towards principle buy down to invest in the stock market. But as I get closer to retirement, I'm starting to look into shifting gears where ideally my home will be paid off or close to it.

I've actually had family and friends ask why don't I downsize with my primary home. I overbought for what I "needed" back in 2001 but sacrificed having to commute further for work with getting a bigger home at price I could afford. Now where I live is considered the new suburbs for the DC area.

[ASAP]

I am not saying there is a fully right way to do all of this but there is certainly a way to bring about a certain sense of accessiblity of homes for people that are responsible and can qualify. Right now... even if you are making 100K... at the average of 400K per home at 7%, you would be close to 50% of your total income... this is absurd for a 1st world nation and quells spending in other areas of the economy.

What caused this? Too low rates for too long (for everyone), low down payments and the govt propping up asset bubbles over everything... there were such better ways to do this and i've outlined them above. Then only people that really could afford a home, could buy one and QUALIFY and housing prices would have never skyrocketed... and RE would not have been used a spectator tool all over.

[spazzyfry123]

I own property that I plan to build on. It is BANANAS what it costs to build a home right now compared to just a couple years ago. Combine that with the hike in interest and the monthly cash flow needed to build an identical home has tripled, nevermind what I'd ultimately spend should the loan see term.

I'm actually backed into a corner right now. I make good money, have no debt, own the land outright, perfect credit, plenty in reserves and investments... And I can't "afford" a very basic home plan. Can I pay for it? Sure. Will I spend that percentage of my income for a place to sleep? Nope. We're just renting a place right now after we sold our home in a different state to move back for the job. Not really sure what to do other than keep renting or approach the build in a very non-traditional way.

[ASAP]

Originally Posted by spazzyfry123

I own property that I plan to build on. It is BANANAS what it costs to build a home right now compared to just a couple years ago. Combine that with the hike in interest and the monthly cash flow needed to build an identical home has tripled, nevermind what I'd ultimately spend should the loan see term.

I'm actually backed into a corner right now. I make good money, have no debt, own the land outright, perfect credit, plenty in reserves and investments... And I can't "afford" a very basic home plan. Can I pay for it? Sure. Will I spend that percentage of my income for a place to sleep? Nope. We're just renting a place right now after we sold our home in a different state to move back for the job. Not really sure what to do other than keep renting or approach the build in a very non-traditional way.

Exactly - the other danger is that as rates have risen... cash flow has dropped very significantly on rentals... now that may be good in some situations, as rental property purchases have probably dropped significantly.

The negative to that is... if you own a home and say lose your job or want to rent your own home out to rent something cheaper in times of dire straights... you may not be able to rent it out for remotely what your mortgage is... which puts people in another quandry.

[Donatello.]

Originally Posted by ASAP

5) 5% downpayment on homes? Why LOL? this should ABSOLUTELY not be allowed... other countries around the world would scoff even remotely at the idea

Why shouldn't it? The average American doesn't have a 20% dp in the bank & an emergency fund & a decent retirement account etc.

So you want no one but the wealthy to be able to buy a home? Brilliant.

[ASAP]

Originally Posted by Donatello.

Why shouldn't it? The average American doesn't have a 20% dp in the bank & an emergency fund & a decent retirement account etc.

So you want no one but the wealthy to be able to buy a home? Brilliant.

then I suppose you have no room to complain about high interest rates (have fun paying the bank more in interest), lack of supply and absurd valuations of homes...

most EU countries would give you an absurd interest rate... with an under 30% down payment lol... if you even qualified...

[dreamingat30fps]

Part of the lack of supply I think is the higher rates. If you are paying 2-3% why would you want to sell your house and get into a much higher rate loan unless you absolutely had to.

I'm sort of in that camp. I would like to sell our FL home and buy something else further north maybe with an acre or so. While my home is paid off any home that would be worth the move for us is now a million dollars or more. Considering our home is worth probably around $600k that means I would still have to come up with another $400k or so with some high interest rate loan. Just not worth it, especially when even at a million dollars the few properties that meet our needs are typically just meh. They certainly don't look like what a million dollar home looks like in my head.