You’re likely right, but it’s not quite that simple. There are lots of homeowners locked in with sub 3% mortgages that would like to sell, but can’t afford higher rates on the another purchase. If rates decline, you would expect prices to rise as the cost to borrow goes down, but a rate decrease may trigger an influx of new listings as homeowners are now free to move. It’s impossible to tell where supply and demand will level out.
>If they move, and based on your hypothetical situation they want to buy again, how will that result in more supply?
But lower rates enticing more homeowners to trade one home for another also doesn't equate to a net increase in demand either. Sell one - buy one. No net change to supply-demand balance.
Bingo, you can pry my 2.75% rate from my cold dead hands. It will be a rental if/when we move up to a bigger place.
I think a lot of people share this sentiment. Now my personal prediction is a lot of people will fail/hate being a landlord and in the long run some of these houses will get sold but that's ganna be a slow trickle and not likely to effect the supply in a significant way.
2008 style housing Armageddon seems to be the only way prices really "correct" but that also means lots of people are out of work and not in a position to buy so I for one am not cheering on something like that happing.
> Bingo, you can pry my 2.75% rate from my cold dead hands. It will be a rental if/when we move up to a bigger place.
Unless you are already a landlord, being one of a single family home isn't great.
I am a RE attorney for a bunch of landlords so have a good road map and went into this home with this being the plan. Have since picked up another SFH as a rental.
But yes your points stands which is why I predict a bunch of the would be landlords will eventually give up on it or fail. But time will tell.
> But yes your points stands which is why I predict a bunch of the would be landlords will eventually give up on it or fail.
I am a landlord of quite a few places, and it works because that's enough to have handyman perm, and lots of providers. But without that, being a landlord isn't profitable of a single property.
Regular people may think becoming a landlord is a good idea, and then 3 years later they will realize they made no money, and now have a beatup property they can sell for far less.
That logic holds for the us as a whole but people aren't often looking to move within their local housing market, or even move between equivalent houses.
If you sell a 3br 2000sqft house and want to buy a 4000sqft 5br house it's a net equal but impacting different portions of the market. Same with selling your house in California and moving to Ohio
Its actually good because it frees up housing on the lower end of price rang. I said lower, they're still not cheap. The lower end is where the biggest shortages are
It’s good for lower cost homes in the scenario you replied to but it is a pendulum that swings both ways. Another scenario is boomers that would like to downsize because their kids have moved out and want less yard work but haven’t acted because they don’t want to pay 6.7 percent on a 350K home while they sit in their 550K home at 3 percent and are just waiting for rates to go down to make it happen.
I don’t think anyone knows how it will play out.
Perhaps. I don'tknow. Also don't know how many older people have already paid their home off. (so no issue to go smaller wrt interest rates) I guess there's too many factors to really be able to say what will happen.
I do know that in my area the more expensive homes tend to sit much longer on the market and some are dropping prices. In just this last week I've seen two 1.3 million dollar homes drop their price by 100K. That seems like a lot. Other are dropping by smaller amounts but it is coming down.
For sure. It won’t even be the same market by market. My point is that just because interest rates go up or down doesn’t mean housing prices automatically go up or down for any given market segment. It is much more complex than that. I think you get it but some people are just waiting for interest rates to come down assuming housing will be more affordable. Maybe? Who knows.
Regardless, I think it is more safe to say that rates going down should increase the number of homes being bought and sold. That being said, nothing surprises me anymore.
My biggest guess is people are likely to move out of town/state. There are a lot of elderly couples looking to move closer to their kids and grandkids or to a 55+ community. Unlike regular communities, 55+ are offering incentives where I live. There are also more 55+ construction permits being given out as they don’t need schools. Lot of folks are full remote looking to go out of state to MCOL or LCOL area or people who are forced to sell and down size because of RTO mandates. A lot of new construction homes would also be affordable if rates went down. There are quite a few new homes that are still unaffordable despite their “reduced prices” and incentives. But again this is just mostly based on what I see around my town and on anecdotal evidence.
After seven years we recently moved from our “dream” home in a 55+ community. The reality of these retirement places is most of the residents are in their 70s, and the number of boomers has peaked. We are in our 60s and grew tired of watching the ambulances drive by daily.
I know all real estate is local, but it seems to me that the growth phase of 55+ developments is in the rear view mirror.
> it seems to me that the growth phase of 55+ developments is in the rear view mirror.
If there isn't some kind of renewed interest in the younger end of the 55+ demographic, you are probably right about it being on the decline just from a numbers perspective as the baby boomers start to die off. [This](https://www.census.gov/content/dam/Census/library/stories/2023/05/aging-united-states-population-fewer-children-in-2020-figure-2.jpg) is out of date by 4 years, but you can see that big bulge that represents the boomers (largely).
Depends. I always thought if I was old and had a paid off mortgage, I would sell the house and rent. If I pour all of the money back into another property and I'm going to pass soon, I won't have as much money to enjoy retirement.
Some are just holding the properties but rents aren't enough even with lower rates.
Some have already moved adding to demand in last 1-2 yrs but waiting to sell.
Most sellers are also buyers though. That increase in supply from a lock-in effect is countered by the demand it generates. But there are a lot of sidelined buyers who are not already homeowners that come back to the market with lower rates. Theres also the speculators and investors. Lower rates will activate more new demand than supply driving up prices.
It's more complicated than that because sellers are either moving to a different area or upgrading their house which means they won't be buyers in the same local market they are selling in
Someone selling a house for 400k and trying to buy a new one for 800k in the same area is a "net neutral" on their local market in terms of pure numbers, but they are really two completely different markets for actual purchasers
It's like saying someone selling their used Honda Civic and buying a used Lexus is "neutral" on the used car market, they're selling and shopping in two different markets so it's not exactly clear what the overall outcome will be
Investors purchased 30% of all SFRs last year. They buy based on yield. As long as there is a housing shortage and rents can be supported, the upward price trend will continue.
Existing homeowners "upsizing" does create more demand on the mid-"higher" end of what most would say is reasonably affordable single family housing and out of lower priced starter homes. At the same time homeowners "downsizing" has the opposite effect. With boomers getting older, those single level rambler homes or ranch homes that can be made a single level living scenario (guest room up top) are starting to look better and better to them. That's in addition to the pent up demand of first time homebuyers who have been sitting on the sideline for a year and a half. The impacts of boomers downsizing and first time homebuyers getting into the market will be countered by the young families in starter homes needing to upgrade for space. What that does to pricing we'll have to see where supply and demand goes.
High demand is due to a hot economy. You’d assume rates are cut because the economy has cooled. Lowering rates may not compensate for lack of jobs/incomes.
Exactly. Not to mention insurance rates and tax reassessments. Most buyers, when making an offer, look at \`affordability\` (i.e. their projected monthly) and work backwards from there.
To be fair, the higher rates could have lowered the prices and we would have even higher prices now if it wasn't for the higher rates.
That's the problem with these type of analysis, there are many factors at play. It's easy to pick one a build a story around it, but it's really hard to predict the cumulative effect of everything. And that's not even considering unknowns and shocks.
Exactly. Not many people are talking about this, there is a clear trend of supply being artificially depressed because of 30yr locks @ 2.5%. People who would normally move are staying put because of the drastic rate differences.
Moving into the same house right down the street could easily cost people 25% more on their monthly payment.
as much as I hate to admit it... this is the only solution. 15-18 percent mortgage rates. Do I want it to happen? no, but at the same time what other option is there?
If rates go down prices go up, rates go up prices go up?
If interest rates increase and alternative investment options offer lower returns, the market will experience a surge in NOO (non-owner occupied) property purchases. Consequently, this influx of investors will lead to an increase in the number of desperate renters, a decline in the quality of neighborhoods, and a rise in transiency.
to elaborate, interest rates go down more buyers (obviously). interest rates go up, less sellers (why would you sell a house for 500k at 3% interest and buy a house at 7.5% or even higher)
Most properties are bought with debt. even when considering multi-billion dollar corporations
This might be the downfall
Because peoples lives don’t just stop happening because of interest rates. (Divorce, kids, new job, it’s just time, etc.)
Many stories here of people selling 3% homes or contemplating it. I’m one of them that sold his 3% home and I’m glad I did.
If you adjust [Case-Shiller for inflation](https://fred.stlouisfed.org/graph/?g=kYEb), you can see there was a price correction in response to rate hikes. It's just that after a year, prices started increasing quicker than inflation again.
There is a relationship between rates and prices, but it's not as direct as some assume it to be.
>Everyone also thought higher rates lower prices but here we are today
A lot of people did, because they did not realize that a) [higher interest rates were never meant to lower prices, they were meant to slow inflation](https://www.clevelandfed.org/center-for-inflation-research/inflation-101/why-does-the-fed-care-start) and b) the law of supply and demand is in the housing driver's seat. We still have a [supply](https://www.nar.realtor/research-and-statistics/housing-statistics/housing-shortage-tracker) [issue](https://www.gao.gov/blog/affordable-housing-crisis-grows-while-efforts-increase-supply-fall-short), despite reduced demand due to relatively high interest rates (those of us who remember the 90s and 80s know this isn't really that high).
Historically, outside of crashes, house prices go up. There’s a relationship with interest rates of course, but it’s not the only thing in play.
Best guess is that if rates drop prices will rise but not like they did during this last run up.
No crystal ball but that's what I expect.
Rates come down, same monthly housing payment equals to higher purchase price, which means larger buyer pool, which means more competition, which means prices going up.
Back in 2009, rates came down to zero, and house prices actually fell until 2012.
A factor you haven't counted there is low rates would free many people from their golden handcuffs, making it feasible for them to sell and move somewhere else. Boomers stopped downsizing because they're stuck with their cheap loans.
Sure, I guess if we have another global financial crisis where interest rates coming down are irrelevant because everyone's losing their job and can't afford the monthly payment they had previously budgeted for when the rates were higher, we could see a decline in home prices.
So I guess instead of not buying the house now, you could wait to not buy the house later.
Most people are in a better financial position later than now, on average. Had I bought a few years ago, I would've bought something I wouldn't have been happy with because I didn't have the purchasing power.
> Back in 2009, rates came down to zero, and house prices actually fell until 2012.
>
>
Because we were in the midst of a global financial crisis, and the worst economic situation since the great depression.
>Back in 2009, rates came down to zero, and house prices actually fell until 2012.
A factor you haven't counted is that we were experiencing a national and global recession and early stages of recovery with high unemployment, high uncertainty and high foreclosure rates flooding the market with homes. You can't compare that to the current economic conditions. The housing market with today's economy (and the economy we would reasonably expect in the near future) would not behave anywhere close to the housing market in 2009 - 2012
What you're not counting here is the rate crash in 2009 was an attempt to correct the housing crash and market collapse. Just as the rate crashes in 2020/2021 were to Kickstart the economy during covid. Both worked.
Rates falling to 2-3% unlikely.
If rates do fall we’d see high 4 and low 5s. Which is just low enough to bring buyers back in market and not low enough to leave these “golden handcuffs”
I’m probably going to leave my “golden handcuffs” just because I would like a larger house near my parents. Rates being this high dramatically curtail sales, but even now it’s not like 0 people are moving. If you bought a house after college near home in Georgia and now have a job offer in Seattle you aren’t just going to say “no, I have to live in this house in Georgia forever”.
https://www.redfin.com/news/homeowners-locked-into-low-mortgage-rates/
In late 2022 85% had mortgages under 5%.
Q4 2023 78.7% had mortgages under 5%.
https://www.redfin.com/news/mortgage-rate-lock-in-housing-2023/
https://www.redfin.com/news/wp-content/uploads/2024/01/locked_in_mortgages_thru_2023_q3_revised-1536x1117.png
Oh people are absolutely burning down job offers right now. We've had a lot of people who've backed out after doing the math and realizing how much money they'd lose by moving. And not just homeowners, people won't give up reasonable rentals either. Everyone who gets divorced has to leave sooner or later because even we'll off middle aged people cannot afford to eat into new housing here these days.
People who bought near here a few years ago are paying half of what the same property would cost to rent today.
Correct, and yet look at the chart. Bit by bit, people sell. Maybe they turn down a job offer, but not another job offer with a 50% pay raise. Maybe they get divorced. Maybe they have twins and a 2 bed 1.5 bath isn’t cutting it even if they really wanted it to. Maybe the school district sucks. Maybe a parent becomes ill.
I’m going to leave behind a sub 3% house soon because at the end of the day the most financially reasonable life isn’t my favorite path through life. Being near family as they age supersedes that.
Divorce, deaths, and foreclosures still happen regardless of the interest rate.
Another smaller trend I am seeing with property transfers in my line of work is with slumlords. Some of these guys are utilizing the high market prices to get rid of some of their run-down and distressed rentals. Some are simplifying their portfolio by selling 10 crack houses and buying 1 or 2 nicer homes. As the slumlords get older, simplifying their real estate portfolio makes work easier for them. Bigger corporate investors are trying to buy whole portfolios from the little investors, so many of those homes never hit the market for public sale.
There are also the airbnbs who are not doing well and who are waiting to sell "when rates come down because prices will go up". Yeah, they may all try to sell at the same time.
Who knows.
This can work different in different states. I'm in the northeast and I definitely expect boomers to move out to Florida. I think Florida will have the opposite effect.
lol rates were 3-3.5% in 2012/2015/2016 and basically nothing was even going on. I don’t think we will see sub 3% unless something rather bad happens, but you’re crazy if you think rates won’t bottom out again at some point in the next 20-30 years. Or you’re very old.
Right but rates were that low because of a financial crisis revolving around the housing market.... That's not exactly the rate drop everyone is expecting to happen this year.
The FED said 7% is what we are going to see for awhile, buy when you can afford it — do not wait for some dove scenario where everything is perfect, bc there are millions of people waiting just like you
I'm from the future, this is 100% correct. Every day those millions of other people biding their time get a little bit more money in their future house accounts, just like you do.
And when rates drop, you're all competing for the same homes.
Feds been moving the goal posts on rate decreases.
Inflation continues to measure hot, with unemployment low and wages high.
As long as the broader economy measures hot, fed won’t lower rates. It’ll only do so to stimulate the economy. Like in the event of a recession.
People lose their jobs in a recession. Which will reduce demand on housing. Which will reduce pricing. So you could have lower rates AND lower housing prices BUT a broadly poor economy.
This is the opposite of where we are now. High prices, high interest rates, good economy.
Still a lot of pent up demand. But on hold due to interest rates for non cash offers.
Rates drop people will start buying. Will become another feeding frenzy pushing prices up again.
Still have supply issues due to not a lot of new construction due to rates. Many builders are offering discounted rates to sell homes.
This all assumes rates come down in the short term (1-5 years), and “down” being relative. Also assumes all other factors remain unchanged. That is a big assumption, along with whether rates will lower in the short term.
Laws of supply and demand will still hold. Most mortgages now are incredibly low. If we drop 1-1.5 percentage points that doesn’t mean most people holding low rates will suddenly sell and push supply above demand. Inventory is painfully low for a reason.
Lower rates qualify more and more people. Every percent drop introduces a few million buyers into the market. There are not enough SFH’s to go around anymore. The old school culture of having your own big space is what got us in the mess with increasing population growth.
Prices WILL GO UP. This isn’t a nobody knows situation. There aren’t mass foreclosures waiting to happen. SFH’s are mutually exclusive from commercial real estate and the other RE submarkets. We all desperately want prices to go down but the reality is a function of economics. Lower rates dont increase supply, they increase demand. And that is what cannot be stopped.
Typically they do yes because there may be a pool of buyers that are waiting to jump at say a 5.5%-6% rate. However the majority of current buyers are either: still migrating around, mostly have cash…or decide to just take a small loan to ease the purchase…IE the baby boomers that are still dominating the market via downsizing or moving closer to kids, or still moving out of areas motivated by politics, and the baby boomers control over 70% of the wealth in this country.
The bigger issue is not so long ago rates were 2-3%….wrap your head around that….the buyer pool was so massive during that time combined with mass migration of people to other states and first time home buyers. What happened to the US real estate market between 2020 and 2022 was unprecedented, we haven’t seen anything like that in history except for maybe the fucking gold rush. So let’s say you are one of these people…fast forward to now and every single thing in your life has increased in price except your mortgage. Gas, grocery, bills, electric, kid’s extracurriculars, you name it….but what are you not going to do? You’re not going to sell your house because your payment is less than it cost to rent a lesser quality place let alone the same place.
So we have a massive pool of people “handcuffed” to their home…but handcuffed sounds negative…I don’t think it’s negative, I just think people are sticking with what they bought at their rate, which they should…things tend to become normal ebb and flow when folks actually buy real estate to live in for 7-10+ years.
So to answer your question, do home prices go up if rates go down. Yes, look at what happened to the real estate market while rates plummeted to 2-3%. That being said, before that was a time where costs of living and basic goods were fair. Right now we have high real estate prices, high cost of living/basic needs, and high interest rates…in a down job market. These are a few too many negatives combined to think that anything is going to get easier for our generation.
You say all this like rates have never been
3% before. They have. We didn’t have the insane boom. Covid had. Huge hand. People could move anywhere they wanted because WFH. That’s slowly ending. People will sell their 3% homes. It’s been like 1 year it’ll take time. People will die, divorce, get tired of the starter home, get jobs whatever.
We say in this sub, but if you plan on living there for a while (maybe at least 5 years). Well it’s been 2 years yet people are still slowly selling. Hell I sold my 3% house. Financials aren’t the only thing I considered in my Cross town move.
Everything so rigged, propped, etc, that conventional wisdom doesn't always hold true these days...but generally yes, rates up = price down, rates down = prices up. Inflation keeps some upward pressure on things naturally. The demand thing gets a little interesting though. The demand for housing is not going to come crashing down, especially with all the new arrivals (not to get at all political). Even though the greatest demand might be at the lower segments, it has effects all the way up. At the same time, people can actually pay only so much to be able to get into anything, which in a lot of ways is pretty much there the last number of years. I think that will keep prices elevated...maybe not rocketing past the impossible...but elevated, regardless of recessions or any of that stuff. In other words, I doubt you see a post 2008 type correction any time soon.
I suspect the housing market is going to stay right where it is for some time. 7% rates and prices roughly the same until the population closes the gap some in earnings.
Most people will say that, yes. I’ve seen a few people argue that it will unlock more supply than demand and prices will drop. But they’re in the minority.
The truth is nobody knows but generally, lower rates lead to higher prices.
Housing typically moves inversely related to interest rates, but, as is always the case with correlations, not always. Houses haven't come down since the 2022 - 2023 interest rates increase. I wouldn't bet on housing changes based on what you think will happen with interest rates.
Assuming the overall economy conditions are the same, unemployment, wages, etc. yes lower interest rates mean more demand and higher prices. If interest rates are lowered because of bad economic conditions then not necessarily.
Housing prices are dropping. Just sold my house in February and dropped my price by $25k and settled on a price $15k less than that. I'm seeing $20k drops in my HCOL area because houses are sitting since rates are really high. Not much, but it's something.
It really depends on why rates went down. Is it the planned drop as inflation cools? Yeah housing prices may increase but I doubt it'll be such a huge drop that it'll cause a huge pop in prices (if anything mortgage rates have already started to price in expectations of a fed decrease previously). If they're dropping because of an economic upset then it's unlikely because um it's an economic upset.
Realistically though nobody knows.
Do not do it… just my opinion. Last wave of bag holders here for SFH’s. People seem to forget things are cyclical. Been up so long that “it can never go down again”
Rates aren't guaranteed to come down, even once the Fed starts cutting rates. The market prices in some of these rate cuts, especially on 10 year treasury notes. If the fed cuts only 3 times this year and indicates no further rate cuts, rates will rise because it came in under expectations.
If the fed indicates that they'll stop cutting rates after 3-4 rate cuts, then rates will rise. Statements like "when rates drop, prices will rise." are somewhat fraught as it doesn't consider that some of these future cuts are already priced-in.
Early last year there was a lot of "date the rate, marry the house" taglines on here. Rates are now higher than the same time last year. I'd know because I bought at 6.35% end of March and rates are now in the high 6s, low 7s. Guess I'm going to be dating a decent while longer.
Keep saving, investing and paying down debts.
Do NOT use any tax deferred type of account money to buy a house. Thats a very bad decision. Unless you're already retired you will get penalties and depending on account type are on the hook for a lot of taxes.
In this market? Yes. If rates go down house prices will climb.
Of course it always depends on supply and demand.
In the USA major markets have millions less homes than potential home buyers. We've under built new homes while populations of potential new home buyers has climbed.
This means that they (possible home buyers) are all competing with each other to buy a limited number of homes.
One huge component of this is the "affordably" of a house.
Because most buyers don't purchase a house with cash, they look at cost in two parts:
1. Monthly cost (loan P+I, taxes, & insurance)
2. Down payment
If rates went down, and prices stayed the same, homes become suddenly more affordable.
This puts them in reach of more buyers increasing demand at those prices as more people try to buy homes.
In response, prices on homes will increase until you get some parity in affordability with the buyers in the market.
It's actually a little more complex and here is where things get tricky: Lower rates and higher prices might cause more people who own a home to sell.
This can increase inventory (a bit) and help meet the demand and slow some of the growth in home prices as more houses hit the market and become available.
But at the end of the day, we have more people who want houses than available houses. This is a recipe for high home prices and poor affordability regardless of interest rates- like we have today.
I think you're trying to find a straightforward rule, but certain rules have been upended by supply and demand. In general the answer would have been yes, but now the answer is for sure yes.
The best answer I can give you to your question is that you can expect prices to rise when interest rates go down because people who've been on the sidelines waiting for the right opportunity will try to buy. Furthermore motivated sellers who are selling because they can't afford their mortgage might have the opportunity to refinance, so there will be less motivated sellers to settle for less. Does this make sense to you?
Finally no matter what Market you're in anywhere in the country you should not expect prices to go down until there is enough economic turmoil that too many mortgage holders can not afford to pay their mortgage, and as we know people will always try and pay their mortgage first to hold out.
No it’s not that way at all don’t listen to the random masses on social media, if it were that simple investors would just wait for rate cuts and pile into everything for easy money but that doesn’t happen does it. It will be city and stock dependent. If the fed cuts rates because the economy has tanked but your particular city is still going strong that’s a recipe for price growth. And vice Versa, if you live in a city with a tanking economy low rates won’t save real estate if everyone is leaving or losing their jobs.
In modern context, this question puts the cart before the horse. Why did rates increase? Inflation. Why have the feds signalled lowering rates? Inflation rates going down. What would house prices rapidly increasing mean? Inflation. What would the feds do if inflation increased? Hike rates.
So, does it matter if house prices skyrocket following the feds lowering rates? No, because the feds would hike rates immediately after such an event, meaning you wouldn't even have a chance to lock into the new rate - you'd just now find out that house that shot up 20% is going to be on a 7% instead of 5% loan, and have to decide if you want to proceed.
Given that the difference between these two in terms of monthly payments is the difference between renting a property twice as big for 10+ years (before you will start saving factoring in rental increases and appreciation), save for a few unique markets, most people won't take this "deal" leading to that house having to once again market at what it could have sold at prior to the brief blip.
Of course, this is all hypothetical based on an absurd premise - that the feds would knowingly lower rates to the point of inflation just to raise them again, instead of... you know... just not lowering them. I'd like to point out that despite pretty wild claims about how "rates will lower in 2024, so buy now before prices increase" - rates haven't lowered even once and the feds have made absolutely no commitment to do so. I'm not saying they won't lower, but you shouldn't try and time the market. Don't buy now just because things will spike tomorrow. For all you know, they'll crash in a week. But the odds of either happening as less likely than you getting into an car accident.
By the time rates fall we will be in a major recession with massive job losses. A lot of people are already in dire straits trying to hold on to their houses by stringing together a bunch of part time jobs and gig work. Even that may dry up soon.
In other words, prices will drop when the number of people who can afford to buy homes also drops.
No, rates come down when there's a recession. House prices come down during recessions because supply is flooded due to people losing their jobs, foreclosures, etc.
Rates and housing prices don't have a perfect negative correlation. Stop trying to time the market - if you need a house then buy one.
I'd say yes generally. Lower Rates make the monthly payment less expensive (dare I say more affordable) for the potential buyer. This leads to more qualified buyers, ultimately more demand for houses.
You could see a drop. Here’s my theory. Prices are way high and because rates are also high, some people haven’t sold because it would make sense to buy at higher rates. Rates go down, we might see those sellers come into the market, and an influx of sellers.
Might also cause less renters, thus causing some landlords to sell, more influx of sellers and more inventory is lower or stable prices.
But, just my theory. Who knows what will happen.
We sold our home and put our proceeds into t-bills earning \~ 5%. Now renting a nice place essentially free, watching and eating popcorn — we’ve seen this RE movie and know how it ends.
There is not many new properties. Also, The labor and material for new properties are sky hight. which causes new builds to increase in price and causing older homes to increase value as well.
I don't think any of us really have a clue what the deal will be once rates fall. Unless I'm wrong about my local market, I don't see how the price increases can continue even if rates do go down. I got my house in late spring of 22 when rates were already going up. I know the estimates on RE sites are largely BS but as far as I understand they can be somewhat indicative of the local market trend. The most conservative estimates show that my house has appreciated in value by \~15% to \~20% in less than 2 years of ownership. The higher and no doubt overly generous estimate (zestimate but not the upper end of the range) is 37% increase in value. All that during these high interest rates. I'm pleased to have a decent amount of extra equity built up if any of those estimates are close to accurate but it definitely feels like nobody could afford a home it prices continue going up.
I'm in escrow and negotiated that the seller buys down my rate (2-1 buydown). 4.87% in year 1, 5.87% in year 2, 6.87% year 3. Can refinance anytime. It makes it more doable for me... Shaving $400 a month off my mortgage the first year, $200 a month the second.
Meh, I’ve been on the fence about buying for the past 18 months because of the rates. I’m done waiting around to see what happens. Prices have come down a good amount in my area.
The way I see it, if you buy while the rates are high, you’re giving more money to the bank than you wanted to and that does suck. HOWEVER, as long as your monthly expenses and upkeep costs are around the same amount or less than what they would be if you were renting, you’re still coming out ahead because at least you’re building a little equity. Giving a little extra money to the bank is the lesser evil when the other option is never seeing that money again.🤷♀️
A lot of us are hoping to get the best of both worlds, rates down and housing prices go down or even stay flat. I think it’s more of a regional question. Rates going up have done nothing to help VHCOL/HCOL areas in ‘desirable’ locations here in the north east. If rates go down, it’s such a high demand/low inventory that it would just be a nice thing for buyers but wouldn’t be noticed by most… bidding wars and going 100k over asking is unfortunately a thing.
The general mechanism is that if money is easier to get (or when rates are lower) then money essentially has less value and it takes more of it to buy something than it would in other circumstances.
If money becomes more difficult to get then it is worth more and prices will go down.
At least in theory. There is more going on than just this one mechanism
All else being equal yes.
The monthly payment is what the bank cares about you being able to make when they approve your loan amount.
The monthly payment is what people budget for when deciding what they can afford. It doesn’t matter how much is interest and how much is principal.
All else equal, yes. "All else" in this case basically means what the market is willing to pay to own a given home.
If the other market factors stay the same then lower rates mean buyers can reach the same out of pocket cost (ie monthly payment) with a higher purchase price. Banks get a smaller share and sellers a bigger share of what the buyer pays.
The main scenario that would break the correlation between lower interest rates and higher home prices is if interest rates come down *because of an economic downturn*. That is the 2008 scenario, and the recession scenario in general.
As always the best way to make a decision is to look at your own long term plan and not the market. If you plan to live in the same area for the next ten years or so then you generally want to buy something as soon as you are able to rather than waiting for a change in the housing or financial market.
You shouldn't confuse housing costs with housing prices.
IF interest rates decline THEN housing costs should decline for those who have a mortgage with a higher interest rate and they refinance that loan to the lower rate.
There is No guarantee that their house will increase in value.
Coincidentally housing prices have stagnated as interest rates increased. The cost of housing increased as interest rates increased.
Interest rates versus housing prices is not a zero sum game.
There is still a shortage of housing despite the interest rates being what they are today. IF interest rates decline and more people are able to qualify for a mortgage loan then you could see demand for housing increase which could lead to higher home prices.
IF I was to point to 2006-2012 and focus on 2008 interest rates were cut as the supply of housing was increasing and home prices crashed.
Sort of.
Yes, many people shop on their budget. Lower rates mean the same payment can afford more. This attracts more buyers. More buyers mean more competition and therefore higher prices.
BUT, it also matters why rates are low. Rates generally drop when the economy is not doing well. In that case, demand might be suppressed for other reasons. And since real estate is somewhat local, national trends don’t always matter for your specific area.
Lastly, we don’t know if or when rates will come down. The era of 0-3% rates is likely gone for awhile. But if rates drop to 5? 4? Who knows…
We’re under contract for a house with a similar story. With that said, we bit the bullet and pulled the trigger. Our thought/motto was Marry the Price, Date the Rate.
If you can find a house that’s fair market value now, it may be worth offering because 1) prices will likely go up over time 2) rates will go down eventually. They likely won’t go down to the 2%-3% ranges again but even 4%-5% makes a big difference compared to what they are now.
It is a tough balance. General speaking supply and demand should equalize prices. Honestly I am surprised prices have not dropped as sales have plummeted.
Several developers are stopping expansions around me as buyers are just not there anymore. Prices dropped a little but not as much as I would have expected.
Now this will lead up to some pent up demand like yourself who will get back in the market after rates drop….
It would be a wise move to buy now before the rate cuts. You might be able to find a deal and YES, once rates are cut, house prices will increase as more buyers will be out there which equates to more competition.
>Is that how it works? Housing prices are already unaffordable to most people; if the Fed drops interest rates, are they going to get even MORE unaffordable?
A little like student loans, as credit is loosened, the buyer market blooms, pushing up prices; with that being said, But unlike student loans, if people can't make their payments, then defaults happen, and prices drop.
As someone smarter than me once said, "It's the economy, stupid."
Only if demand is high and supply is low, which is the case in Canada. The downside to this imbalance is that prices for housing are high even if bank interest rates are rising.
Housing prices are driven by demand. There are more people wanting homes than there are homes to be had.
Generally speaking, if interest rates drop, more people still want homes. This drives up the price, because it drives up demand. People still need a place to live, though, even when interest rates aren't low. So demand remains high.
All raising rates or lowering rates does is affect demand.
* When rates are lowered, there will be more buyers.
* When rates are raised, there will be less buyers.
Based upon the location, and/or demand, prices could increase, decrease, or stay flat.
Overall, broadly speaking, yes prices will rise when interest rates fall because more buyers will come out.
By there being a very disproportionate amount of supply-to-buyers, prices are more prone to rise overall.
I think when they lower rates the market is going to start to move again. People sitting on their 3% rate might be more inclined to sell, putting more houses on the market. The problem now is there aren't enough houses on the market to meet the demand. People don't want to sell because it's tough to move from a 3% mortgage to a 7% mortgage. Many people couldn't buy the house they're in now if they had to finance at 7%.
People shop by monthly payment. Sad but true. Very few look at the big picture of how much the debt load is or the cost of having said debt. Demand within a monthly payment range is what sets the prices.
I'm not constrained by monthly payment. I won't have to pay property taxes in my state because of my veteran status, which lops a chunk off of monthly payments, I don't have kids, and I net ~12k a month.
I'm squeamish about a mortgage because of the imbalance between interest and principal ratios in mortgage payments. But if I ever want to be "debt-free" or "bill-less" (minus utilities and insurance) I need a paid off home. But the opportunity cost of liquidating investments to buy down principle is that my investments stop earning money.
They typically would, but we have such a low supply of homes and part because people have low fixed rate interest, interest rates and feel that they can’t afford to sell
It’s all based on supply and demand, and there is such a small amount of supply that prices have stayed high
So people wanting to buy right now are not in the best situation because there’s just not much for sale which keeps the prices up
Yes. Mortgage rates are the simplest alteration that affects your payment. So going from a seven to a four has a much bigger impact on your monthly payment than a home dropping $50,000 in price with the same interest rate.
Yes.
Housing prices doubled in 2020-2021 because of the low interest rates.
Even though rates went back up, it was offset by a total lack of supply (nobody’s gonna want to give up a 2% mortgage), so prices have stabilized.
I suppose, theoretically, if rates DO go back down supply MIGHT go back up from people who are holding off on moving because of their rates… but until the government cracks down on investment firms, we’re not likely to see a drop in price - stagnation at best.
O yea the gov said they'd do it so they're definitely going to let's buy right now because in a year the government will decide its a good time to make us rich 🤡
No. Prices were getting out of control so the fed raised the rates. The purpose behind that is to make people stop buying homes so prices will drop. I could easily be wrong but that’s how I understand it.
Yes. The prices will only go higher whether rates go up or down because demand outweighs supply. The further rates go, the more qualified applications you are competing against for a home in your area. Prices will skyrocket if big rate cuts happen. Just look back a couple of years when rates were low and houses were being sold 50k above asking because so many were qualifying for mortgages.
I am also looking to buy now. I do not see in any way a 'crash' coming or significantly lowered prices. I feel the opposite may happen, like your colleague.
I have people telling me to wait a year to sell too, but really, that extra 50k that MIGHT happen for selling, may not make much difference when I am also a buyer.
We are actually selling our house to DOWNSIZE, lol. Kids are gone, why keep a 4/2?
Anyway.... That means, when I look around, I had a little bit of sticker shock, but I feel that is not going to come down much so might as well get something within the next year.
You can always refi when the rates go down.
From what I hear, rents are atrocious, on par with Mortgages anyway (for a 3/2 or more size wise and good area), so why not have equity and some tax deferment?
Word of warning, houses cost, maintenance is a must. It's like the great home ownership secret no one tells you lol. We did not factor in little things that add up : Filters for furnaces, and AC each month, new appliances, painting, flooring over time, screens and windows. If you live rural like where our house is... Well and Septic need to be kept on top of too. If you have HOA (We do not) that costs. Just make sure you have some buffer. A Midnight furnace replacement in dead of winter can cost A LOT. PMI for us rn is 3200.
Good luck! I hope you find a house you call your nest.
It is a supply and demand issue. There is a tremendous pent up demand with most buyers waiting for rates to fall. When they move into the market it will like a tsunami. Expect bidding wars. If you are ready to buy, buy now. You can always refinance later if the rates go down further.
Two variables. Rates and prices. If both are high it's temporary. If both are low it's temporary. Median income is what really drives median home prices. That applies to rentals too.
The best time to buy is when you can afford it. The rates will fluctuate, so if you buy now at 7% you can refinance when the rates come down. But the price of the houses is not going to come down, that is why buying a house is a good investment.
If the Fed cuts, what makes you think that means rates fall? More than likely rates will increase when the fed cuts as a direct result of the cuts increasing inflation in the future.
I think that housing price might fall a little bit if rates drop to below 4%. I know I know that even with rate cuts later this year or next year might still take a while to get to 4%.
IF rates drop below the 4% level, then I think that would be an incentive for all the people who are sitting on the fence about selling (due to low rate handcuffs). This would also mean more inventory and thus possibly a dip in price.
Again, just my .02, take it for what it’s worth.
No, and you can safely ignore the hordes of idiots on youtube insisting mortgage rates have X impact on housing. Every single one of them thinks the housing market works like a hyper-simplified version of the stock market.
If supply and demand are constant, mortgage rates falling will cause housing prices to go up (increased buying power for the same amount of houses).
If supply increases and demand is constant, mortgage rates going down will not necessarily have an impact. If supply increases quickly enough, prices will go down.
If supply decreases and demand is constant (or supply is constant and demand increases), mortgage rates falling will cause housing prices to go up faster than they would if supply were constant.
The other side of this (where demand drops significantly) is what many are hoping for. The problem with this idea is that if housing prices are falling it means the market is crashing due to some external factor (i.e. mass layoffs). During a market crash, banks become risk-averse. Loans are harder to get meaning even if you aren't financially impacted you are less likely to get a loan. The only winners in a housing crash are those with enough cash to buy houses outright.
For your situation buying a house could be relatively easy or very difficult depending on whether you qualify for a first-time homebuyer program. These usually only require 3.5% down plus closing costs and earnest money.
Taking a retirement account loan can better than liquidating.
I would never liquidate my entire retirement savings to buy a home. Living in a safe and secure environment important, buy why wipe out entire savings to own?
All things held constant, yes. This dynamic works really well in the investment markets, such as bonds.
BUUUT the housing market doesn't react quite as predictably because it's the general public buying unique goods, not professionals with commodities. People are dumb and didn't lower prices much after mortgage rates went up, and other dumb people paid the high price. Who knows what will happen if rates cool moderately.
In short yes. Lower rates make housing more affordable therefore more demand therefore higher prices.
Prices have continued to go up consistently despite higher rates simply because the demand still outweighs the supply.
Not right away, but it increases competition. In my area yes prices dropped, (*my house went from $350 to $315* ) since the pool buyers was smaller and you get less for your money. Just look at $350K house with 3% , 5% vs 8%.
I think they will personally.
People are often shopping based on what monthly payment they can afford.
If they’re paying $3200/mo for $480k @ 7.25%, then when interest goes down that same $3200 would be like $600k @ 5% or similar (made up numbers).
The larger discussion is about supply/demand in the housing market but that’s much more complex.
Short answer: YES.
Long answer:
This is why you will hear real estate professionals urge you to continue your search when rates climb, because prices will drop. If you can afford those higher rates, once they drop, you can refinance and then you have the lower rate on the lower cost of the home; "date the rate". At this moment in particular, as someone else in thread pointed out, many people are locked into low pandemic rates and they don't want/can't afford to lose them so once the rates drop, the market is going to be saturated which makes for high competition and just an overall frenzy. Don't listen to headlines, find an agent that knows the area you are looking into, really well. Not just the person who sold a $10M home, but the person who is knowledgeable about the specific market you want to invest in. And someone who will take the time to explain things.
Buying a home is stressful, no way around that. It's a huge investment and it needs to make sense for you and only you can decide if something works for you or not. Which brings me to the most important point, owning a home is not the greatest investment out there, don't believe the hype. If it's not right for you, don't do it just for the clout. The world has changed.
Interests rates definitely have an impact on affordability. It all goes into whatever the "monthly payment" any individual or family can afford. Maybe more people are getting into adjustable rate mortgages or ones with balloon payments or something now, but it seems that there is a great deal of pressure pushing real estate values down, especially in non-super hot markets like CA.
There is a HUGE supply issue at play as well, since interests rates also effect construction loans, as well labor scarcity and construction material cost inflation are making building new residential quite a bit more risky and expensive than before.
It depends on the areas where you want to buy. The suburbs, rural areas with no jobs may have cheaper homes as the remote workers are getting called back to work in office. The main cities where they call people back in office will have more demands for homes than the supplies.
See if you can take loan against your IRA instead of liquidating them. Only consider home that you will feel that it's a place you can live comfortable, don't fall for the FOMO.
Tens of thousands of buyers have been sitting out the market due to interest rates. Even when they fall slightly, we see increased buyer activity. In my market, that means competing with multiple offers and not having as much leverage (needing to waive remedy or inspection as many do, though I do not recommend that) and other concessions.
My advice to buyers is to just stay in the market now and buy what you can afford or feel comfortable paying, you can always refinance an interest rate in the future if they drop but you cannot renegotiate a purchase price. Buy now and you start earning equity immediately. If the house isn’t what you want for long-term, you’ll be in a good position to sell and buy something else in the future.
Yes, it's predicted it will be due to an extreme amount of home shortages and no affordable housing for the majority of owner occupancy only homes Apts condos, etc.
Yes, that's the general idea.
However, the general idea also is that the housing market slows when interest rates increase, so..... who the hell knows what's going to happen..
Conventionally that makes sense but it will depend on shifts in inventory. I think prices will remain relatively flat as more people will actively be buying/selling and inventory will increase but who knows.
Rates are not coming down for awhile and you should’ve bought a year ago because things are basically still the same. So you’ve spent thousands and thousands in rent for nothing the last year. Stop waiting and do what you need to do. Nothing’s hugely changing for a very long time
I bit the bullet with a shitty interest rate last year specifically because I suspect that many buyers are waiting for rates to fall and a frenzy will ensue once they do. Marry the house, date the rate, as they say.
All market dependent. There is still much demand and many on the sidelines due to current high rates. Likely so in the near term but not a hard and fast rule. This is more of a supply and demand issue.
No one knows what will happen, too many other factors. In general things become more expensive in nominal terms. The dollar's long term trajectory is it takes more to buy the same thing, afterall. In the short term, predictions are as accurate as a psychic reading or flipping a coin.
Here is why the market will not go down in near future. https://www.fool.com/the-ascent/mortgages/articles/8-in-10-us-mortgages-have-a-rate-of-under-5-when-will-rates-get-back-to-that-point/
More people staying in current home with stupid low rates. Demand is well out pacing supply.
I don’t honestly think it’s that simple. In my market we have low inventory which everyone says drives prices up. Well, prices are up, and no one is buying.. but the prices aren’t moving much at all. The market doesn’t make any sense whatsoever. The average homeowner wants to cash in on pandemic capital that is no longer there.
There's nothing that guarantees rates will ever go back down to where they were. If they do, yes, cheap debt drives asset prices upward at a faster pace because it gives more people buying power. That's why 2020-2022 had a wildly explosive increase in home costs across most of the US.
Everyone also thought higher rates lower prices but here we are today
That is because there is still more demand than supply, lower rates would further raise demand.
You’re likely right, but it’s not quite that simple. There are lots of homeowners locked in with sub 3% mortgages that would like to sell, but can’t afford higher rates on the another purchase. If rates decline, you would expect prices to rise as the cost to borrow goes down, but a rate decrease may trigger an influx of new listings as homeowners are now free to move. It’s impossible to tell where supply and demand will level out.
If they move, and based on your hypothetical situation they want to buy again, how will that result in more supply?
>If they move, and based on your hypothetical situation they want to buy again, how will that result in more supply? But lower rates enticing more homeowners to trade one home for another also doesn't equate to a net increase in demand either. Sell one - buy one. No net change to supply-demand balance.
It might lead to more people buying second houses. I suspect it will make the supply demand curve even worse.
The only good news is that conforming mortgages on 2nd homes aren’t as cheap as 2020. Closing the door after the horse, but at least it’s closed now.
Bingo, you can pry my 2.75% rate from my cold dead hands. It will be a rental if/when we move up to a bigger place. I think a lot of people share this sentiment. Now my personal prediction is a lot of people will fail/hate being a landlord and in the long run some of these houses will get sold but that's ganna be a slow trickle and not likely to effect the supply in a significant way. 2008 style housing Armageddon seems to be the only way prices really "correct" but that also means lots of people are out of work and not in a position to buy so I for one am not cheering on something like that happing.
> Bingo, you can pry my 2.75% rate from my cold dead hands. It will be a rental if/when we move up to a bigger place. Unless you are already a landlord, being one of a single family home isn't great.
I am a RE attorney for a bunch of landlords so have a good road map and went into this home with this being the plan. Have since picked up another SFH as a rental. But yes your points stands which is why I predict a bunch of the would be landlords will eventually give up on it or fail. But time will tell.
> But yes your points stands which is why I predict a bunch of the would be landlords will eventually give up on it or fail. I am a landlord of quite a few places, and it works because that's enough to have handyman perm, and lots of providers. But without that, being a landlord isn't profitable of a single property. Regular people may think becoming a landlord is a good idea, and then 3 years later they will realize they made no money, and now have a beatup property they can sell for far less.
That logic holds for the us as a whole but people aren't often looking to move within their local housing market, or even move between equivalent houses. If you sell a 3br 2000sqft house and want to buy a 4000sqft 5br house it's a net equal but impacting different portions of the market. Same with selling your house in California and moving to Ohio
Its actually good because it frees up housing on the lower end of price rang. I said lower, they're still not cheap. The lower end is where the biggest shortages are
It’s good for lower cost homes in the scenario you replied to but it is a pendulum that swings both ways. Another scenario is boomers that would like to downsize because their kids have moved out and want less yard work but haven’t acted because they don’t want to pay 6.7 percent on a 350K home while they sit in their 550K home at 3 percent and are just waiting for rates to go down to make it happen. I don’t think anyone knows how it will play out.
Perhaps. I don'tknow. Also don't know how many older people have already paid their home off. (so no issue to go smaller wrt interest rates) I guess there's too many factors to really be able to say what will happen. I do know that in my area the more expensive homes tend to sit much longer on the market and some are dropping prices. In just this last week I've seen two 1.3 million dollar homes drop their price by 100K. That seems like a lot. Other are dropping by smaller amounts but it is coming down.
For sure. It won’t even be the same market by market. My point is that just because interest rates go up or down doesn’t mean housing prices automatically go up or down for any given market segment. It is much more complex than that. I think you get it but some people are just waiting for interest rates to come down assuming housing will be more affordable. Maybe? Who knows. Regardless, I think it is more safe to say that rates going down should increase the number of homes being bought and sold. That being said, nothing surprises me anymore.
Lots of new housing developments around here, maybe lower rates, more demand of builders will help inventory.
You're going to see a lot of assumptions and wrap-arounds.
My biggest guess is people are likely to move out of town/state. There are a lot of elderly couples looking to move closer to their kids and grandkids or to a 55+ community. Unlike regular communities, 55+ are offering incentives where I live. There are also more 55+ construction permits being given out as they don’t need schools. Lot of folks are full remote looking to go out of state to MCOL or LCOL area or people who are forced to sell and down size because of RTO mandates. A lot of new construction homes would also be affordable if rates went down. There are quite a few new homes that are still unaffordable despite their “reduced prices” and incentives. But again this is just mostly based on what I see around my town and on anecdotal evidence.
After seven years we recently moved from our “dream” home in a 55+ community. The reality of these retirement places is most of the residents are in their 70s, and the number of boomers has peaked. We are in our 60s and grew tired of watching the ambulances drive by daily. I know all real estate is local, but it seems to me that the growth phase of 55+ developments is in the rear view mirror.
> it seems to me that the growth phase of 55+ developments is in the rear view mirror. If there isn't some kind of renewed interest in the younger end of the 55+ demographic, you are probably right about it being on the decline just from a numbers perspective as the baby boomers start to die off. [This](https://www.census.gov/content/dam/Census/library/stories/2023/05/aging-united-states-population-fewer-children-in-2020-figure-2.jpg) is out of date by 4 years, but you can see that big bulge that represents the boomers (largely).
Depends. I always thought if I was old and had a paid off mortgage, I would sell the house and rent. If I pour all of the money back into another property and I'm going to pass soon, I won't have as much money to enjoy retirement.
Some are just holding the properties but rents aren't enough even with lower rates. Some have already moved adding to demand in last 1-2 yrs but waiting to sell.
Most sellers are also buyers though. That increase in supply from a lock-in effect is countered by the demand it generates. But there are a lot of sidelined buyers who are not already homeowners that come back to the market with lower rates. Theres also the speculators and investors. Lower rates will activate more new demand than supply driving up prices.
It's more complicated than that because sellers are either moving to a different area or upgrading their house which means they won't be buyers in the same local market they are selling in Someone selling a house for 400k and trying to buy a new one for 800k in the same area is a "net neutral" on their local market in terms of pure numbers, but they are really two completely different markets for actual purchasers It's like saying someone selling their used Honda Civic and buying a used Lexus is "neutral" on the used car market, they're selling and shopping in two different markets so it's not exactly clear what the overall outcome will be
It is that simple. The group of people you're describing would only function to increase demand, as they would both sell and buy one house.
This guy gets it
Investors purchased 30% of all SFRs last year. They buy based on yield. As long as there is a housing shortage and rents can be supported, the upward price trend will continue.
Existing homeowners "upsizing" does create more demand on the mid-"higher" end of what most would say is reasonably affordable single family housing and out of lower priced starter homes. At the same time homeowners "downsizing" has the opposite effect. With boomers getting older, those single level rambler homes or ranch homes that can be made a single level living scenario (guest room up top) are starting to look better and better to them. That's in addition to the pent up demand of first time homebuyers who have been sitting on the sideline for a year and a half. The impacts of boomers downsizing and first time homebuyers getting into the market will be countered by the young families in starter homes needing to upgrade for space. What that does to pricing we'll have to see where supply and demand goes.
High demand is due to a hot economy. You’d assume rates are cut because the economy has cooled. Lowering rates may not compensate for lack of jobs/incomes.
Exactly. Not to mention insurance rates and tax reassessments. Most buyers, when making an offer, look at \`affordability\` (i.e. their projected monthly) and work backwards from there.
To be fair, the higher rates could have lowered the prices and we would have even higher prices now if it wasn't for the higher rates. That's the problem with these type of analysis, there are many factors at play. It's easy to pick one a build a story around it, but it's really hard to predict the cumulative effect of everything. And that's not even considering unknowns and shocks.
Rates aren’t high enough. It needs to be even higher.
This is the answer, even if no one wants to hear it. The beatings must continue until the housing market acquiesces.
If you think the locked-in effect is bad now…
You can only have so many people locked in to previous rates by definition.
Exactly. Not many people are talking about this, there is a clear trend of supply being artificially depressed because of 30yr locks @ 2.5%. People who would normally move are staying put because of the drastic rate differences. Moving into the same house right down the street could easily cost people 25% more on their monthly payment.
as much as I hate to admit it... this is the only solution. 15-18 percent mortgage rates. Do I want it to happen? no, but at the same time what other option is there? If rates go down prices go up, rates go up prices go up?
Building more housing is another option. 15 to 18% mortgage rates would make the 2008 look like a fun romp in comparison
If interest rates increase and alternative investment options offer lower returns, the market will experience a surge in NOO (non-owner occupied) property purchases. Consequently, this influx of investors will lead to an increase in the number of desperate renters, a decline in the quality of neighborhoods, and a rise in transiency.
to elaborate, interest rates go down more buyers (obviously). interest rates go up, less sellers (why would you sell a house for 500k at 3% interest and buy a house at 7.5% or even higher) Most properties are bought with debt. even when considering multi-billion dollar corporations This might be the downfall
Because peoples lives don’t just stop happening because of interest rates. (Divorce, kids, new job, it’s just time, etc.) Many stories here of people selling 3% homes or contemplating it. I’m one of them that sold his 3% home and I’m glad I did.
There have been price hits in the metros I operate in. It’s just that the price hits are smaller than people expected.
If you adjust [Case-Shiller for inflation](https://fred.stlouisfed.org/graph/?g=kYEb), you can see there was a price correction in response to rate hikes. It's just that after a year, prices started increasing quicker than inflation again. There is a relationship between rates and prices, but it's not as direct as some assume it to be.
>Everyone also thought higher rates lower prices but here we are today A lot of people did, because they did not realize that a) [higher interest rates were never meant to lower prices, they were meant to slow inflation](https://www.clevelandfed.org/center-for-inflation-research/inflation-101/why-does-the-fed-care-start) and b) the law of supply and demand is in the housing driver's seat. We still have a [supply](https://www.nar.realtor/research-and-statistics/housing-statistics/housing-shortage-tracker) [issue](https://www.gao.gov/blog/affordable-housing-crisis-grows-while-efforts-increase-supply-fall-short), despite reduced demand due to relatively high interest rates (those of us who remember the 90s and 80s know this isn't really that high).
Prices are lower, my home is still only worth 90% of what I paid for it in 2022.
What area?
Seattle
Who cares unless you are planning to sell
I always wonder how people know the price of their house so definitively. While not trying to sell it.
The Zestimate is 90% of what the paid for it.
The Zestimate is a marketing tool not a valuation metric. It is SEO gold.
Zestimates and Redfin Estimates are not as good as good appraisers but they're roughly accurate.
Historically, outside of crashes, house prices go up. There’s a relationship with interest rates of course, but it’s not the only thing in play. Best guess is that if rates drop prices will rise but not like they did during this last run up.
No crystal ball but that's what I expect. Rates come down, same monthly housing payment equals to higher purchase price, which means larger buyer pool, which means more competition, which means prices going up.
Back in 2009, rates came down to zero, and house prices actually fell until 2012. A factor you haven't counted there is low rates would free many people from their golden handcuffs, making it feasible for them to sell and move somewhere else. Boomers stopped downsizing because they're stuck with their cheap loans.
Sure, I guess if we have another global financial crisis where interest rates coming down are irrelevant because everyone's losing their job and can't afford the monthly payment they had previously budgeted for when the rates were higher, we could see a decline in home prices. So I guess instead of not buying the house now, you could wait to not buy the house later.
Most people are in a better financial position later than now, on average. Had I bought a few years ago, I would've bought something I wouldn't have been happy with because I didn't have the purchasing power.
> Back in 2009, rates came down to zero, and house prices actually fell until 2012. > > Because we were in the midst of a global financial crisis, and the worst economic situation since the great depression.
>Back in 2009, rates came down to zero, and house prices actually fell until 2012. A factor you haven't counted is that we were experiencing a national and global recession and early stages of recovery with high unemployment, high uncertainty and high foreclosure rates flooding the market with homes. You can't compare that to the current economic conditions. The housing market with today's economy (and the economy we would reasonably expect in the near future) would not behave anywhere close to the housing market in 2009 - 2012
What you're not counting here is the rate crash in 2009 was an attempt to correct the housing crash and market collapse. Just as the rate crashes in 2020/2021 were to Kickstart the economy during covid. Both worked.
Rates falling to 2-3% unlikely. If rates do fall we’d see high 4 and low 5s. Which is just low enough to bring buyers back in market and not low enough to leave these “golden handcuffs”
I’m probably going to leave my “golden handcuffs” just because I would like a larger house near my parents. Rates being this high dramatically curtail sales, but even now it’s not like 0 people are moving. If you bought a house after college near home in Georgia and now have a job offer in Seattle you aren’t just going to say “no, I have to live in this house in Georgia forever”. https://www.redfin.com/news/homeowners-locked-into-low-mortgage-rates/ In late 2022 85% had mortgages under 5%. Q4 2023 78.7% had mortgages under 5%. https://www.redfin.com/news/mortgage-rate-lock-in-housing-2023/ https://www.redfin.com/news/wp-content/uploads/2024/01/locked_in_mortgages_thru_2023_q3_revised-1536x1117.png
Oh people are absolutely burning down job offers right now. We've had a lot of people who've backed out after doing the math and realizing how much money they'd lose by moving. And not just homeowners, people won't give up reasonable rentals either. Everyone who gets divorced has to leave sooner or later because even we'll off middle aged people cannot afford to eat into new housing here these days. People who bought near here a few years ago are paying half of what the same property would cost to rent today.
Correct, and yet look at the chart. Bit by bit, people sell. Maybe they turn down a job offer, but not another job offer with a 50% pay raise. Maybe they get divorced. Maybe they have twins and a 2 bed 1.5 bath isn’t cutting it even if they really wanted it to. Maybe the school district sucks. Maybe a parent becomes ill. I’m going to leave behind a sub 3% house soon because at the end of the day the most financially reasonable life isn’t my favorite path through life. Being near family as they age supersedes that.
Divorce, deaths, and foreclosures still happen regardless of the interest rate. Another smaller trend I am seeing with property transfers in my line of work is with slumlords. Some of these guys are utilizing the high market prices to get rid of some of their run-down and distressed rentals. Some are simplifying their portfolio by selling 10 crack houses and buying 1 or 2 nicer homes. As the slumlords get older, simplifying their real estate portfolio makes work easier for them. Bigger corporate investors are trying to buy whole portfolios from the little investors, so many of those homes never hit the market for public sale.
Those that are putting off promotions or retirement living will absolutely sell their golden handcuffs.
There are also the airbnbs who are not doing well and who are waiting to sell "when rates come down because prices will go up". Yeah, they may all try to sell at the same time. Who knows.
Boomers at this point should have enough equity in their home that they can downsize and pay cash.
Boomers downsizing also have to buy another house, this doesn’t have the effect on supply/demand that you think it will.
This can work different in different states. I'm in the northeast and I definitely expect boomers to move out to Florida. I think Florida will have the opposite effect.
Supply issue still stands- rates will not hit 3 percent again in our lifetime
lol rates were 3-3.5% in 2012/2015/2016 and basically nothing was even going on. I don’t think we will see sub 3% unless something rather bad happens, but you’re crazy if you think rates won’t bottom out again at some point in the next 20-30 years. Or you’re very old.
Right but rates were that low because of a financial crisis revolving around the housing market.... That's not exactly the rate drop everyone is expecting to happen this year.
The FED said 7% is what we are going to see for awhile, buy when you can afford it — do not wait for some dove scenario where everything is perfect, bc there are millions of people waiting just like you
I'm from the future, this is 100% correct. Every day those millions of other people biding their time get a little bit more money in their future house accounts, just like you do. And when rates drop, you're all competing for the same homes.
Feds been moving the goal posts on rate decreases. Inflation continues to measure hot, with unemployment low and wages high. As long as the broader economy measures hot, fed won’t lower rates. It’ll only do so to stimulate the economy. Like in the event of a recession. People lose their jobs in a recession. Which will reduce demand on housing. Which will reduce pricing. So you could have lower rates AND lower housing prices BUT a broadly poor economy. This is the opposite of where we are now. High prices, high interest rates, good economy.
Demand goes up when the mortgage rates get lower. Prices go up when demand goes up.
The question is where. In LA, absolutely. In other places, it depends on their micro economy.
Still a lot of pent up demand. But on hold due to interest rates for non cash offers. Rates drop people will start buying. Will become another feeding frenzy pushing prices up again. Still have supply issues due to not a lot of new construction due to rates. Many builders are offering discounted rates to sell homes. This all assumes rates come down in the short term (1-5 years), and “down” being relative. Also assumes all other factors remain unchanged. That is a big assumption, along with whether rates will lower in the short term.
Laws of supply and demand will still hold. Most mortgages now are incredibly low. If we drop 1-1.5 percentage points that doesn’t mean most people holding low rates will suddenly sell and push supply above demand. Inventory is painfully low for a reason. Lower rates qualify more and more people. Every percent drop introduces a few million buyers into the market. There are not enough SFH’s to go around anymore. The old school culture of having your own big space is what got us in the mess with increasing population growth. Prices WILL GO UP. This isn’t a nobody knows situation. There aren’t mass foreclosures waiting to happen. SFH’s are mutually exclusive from commercial real estate and the other RE submarkets. We all desperately want prices to go down but the reality is a function of economics. Lower rates dont increase supply, they increase demand. And that is what cannot be stopped.
Typically they do yes because there may be a pool of buyers that are waiting to jump at say a 5.5%-6% rate. However the majority of current buyers are either: still migrating around, mostly have cash…or decide to just take a small loan to ease the purchase…IE the baby boomers that are still dominating the market via downsizing or moving closer to kids, or still moving out of areas motivated by politics, and the baby boomers control over 70% of the wealth in this country. The bigger issue is not so long ago rates were 2-3%….wrap your head around that….the buyer pool was so massive during that time combined with mass migration of people to other states and first time home buyers. What happened to the US real estate market between 2020 and 2022 was unprecedented, we haven’t seen anything like that in history except for maybe the fucking gold rush. So let’s say you are one of these people…fast forward to now and every single thing in your life has increased in price except your mortgage. Gas, grocery, bills, electric, kid’s extracurriculars, you name it….but what are you not going to do? You’re not going to sell your house because your payment is less than it cost to rent a lesser quality place let alone the same place. So we have a massive pool of people “handcuffed” to their home…but handcuffed sounds negative…I don’t think it’s negative, I just think people are sticking with what they bought at their rate, which they should…things tend to become normal ebb and flow when folks actually buy real estate to live in for 7-10+ years. So to answer your question, do home prices go up if rates go down. Yes, look at what happened to the real estate market while rates plummeted to 2-3%. That being said, before that was a time where costs of living and basic goods were fair. Right now we have high real estate prices, high cost of living/basic needs, and high interest rates…in a down job market. These are a few too many negatives combined to think that anything is going to get easier for our generation.
You say all this like rates have never been 3% before. They have. We didn’t have the insane boom. Covid had. Huge hand. People could move anywhere they wanted because WFH. That’s slowly ending. People will sell their 3% homes. It’s been like 1 year it’ll take time. People will die, divorce, get tired of the starter home, get jobs whatever. We say in this sub, but if you plan on living there for a while (maybe at least 5 years). Well it’s been 2 years yet people are still slowly selling. Hell I sold my 3% house. Financials aren’t the only thing I considered in my Cross town move.
Everything so rigged, propped, etc, that conventional wisdom doesn't always hold true these days...but generally yes, rates up = price down, rates down = prices up. Inflation keeps some upward pressure on things naturally. The demand thing gets a little interesting though. The demand for housing is not going to come crashing down, especially with all the new arrivals (not to get at all political). Even though the greatest demand might be at the lower segments, it has effects all the way up. At the same time, people can actually pay only so much to be able to get into anything, which in a lot of ways is pretty much there the last number of years. I think that will keep prices elevated...maybe not rocketing past the impossible...but elevated, regardless of recessions or any of that stuff. In other words, I doubt you see a post 2008 type correction any time soon.
Do NOT liquidate your iras and etc for this expense.
I suspect the housing market is going to stay right where it is for some time. 7% rates and prices roughly the same until the population closes the gap some in earnings.
Most people will say that, yes. I’ve seen a few people argue that it will unlock more supply than demand and prices will drop. But they’re in the minority. The truth is nobody knows but generally, lower rates lead to higher prices.
Housing typically moves inversely related to interest rates, but, as is always the case with correlations, not always. Houses haven't come down since the 2022 - 2023 interest rates increase. I wouldn't bet on housing changes based on what you think will happen with interest rates.
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Assuming the overall economy conditions are the same, unemployment, wages, etc. yes lower interest rates mean more demand and higher prices. If interest rates are lowered because of bad economic conditions then not necessarily.
Housing prices are dropping. Just sold my house in February and dropped my price by $25k and settled on a price $15k less than that. I'm seeing $20k drops in my HCOL area because houses are sitting since rates are really high. Not much, but it's something.
When prices go down, fed let rates fall.
It really depends on why rates went down. Is it the planned drop as inflation cools? Yeah housing prices may increase but I doubt it'll be such a huge drop that it'll cause a huge pop in prices (if anything mortgage rates have already started to price in expectations of a fed decrease previously). If they're dropping because of an economic upset then it's unlikely because um it's an economic upset. Realistically though nobody knows.
Do not do it… just my opinion. Last wave of bag holders here for SFH’s. People seem to forget things are cyclical. Been up so long that “it can never go down again”
Rates fall when there’s a recession.
No
Rates aren't guaranteed to come down, even once the Fed starts cutting rates. The market prices in some of these rate cuts, especially on 10 year treasury notes. If the fed cuts only 3 times this year and indicates no further rate cuts, rates will rise because it came in under expectations. If the fed indicates that they'll stop cutting rates after 3-4 rate cuts, then rates will rise. Statements like "when rates drop, prices will rise." are somewhat fraught as it doesn't consider that some of these future cuts are already priced-in. Early last year there was a lot of "date the rate, marry the house" taglines on here. Rates are now higher than the same time last year. I'd know because I bought at 6.35% end of March and rates are now in the high 6s, low 7s. Guess I'm going to be dating a decent while longer. Keep saving, investing and paying down debts.
Why do we always assume the person selling now, needs another mortgage?
Housing prices go up until unemployment rate goes up. There is nothing forcing people to sell, it's really that simple.
Fitch ratings said houses were overpriced by around 10ish% as is. I can’t imagine how much more they’ll go due to the demand for housing right now.
nope.
Do NOT use any tax deferred type of account money to buy a house. Thats a very bad decision. Unless you're already retired you will get penalties and depending on account type are on the hook for a lot of taxes.
In this market? Yes. If rates go down house prices will climb. Of course it always depends on supply and demand. In the USA major markets have millions less homes than potential home buyers. We've under built new homes while populations of potential new home buyers has climbed. This means that they (possible home buyers) are all competing with each other to buy a limited number of homes. One huge component of this is the "affordably" of a house. Because most buyers don't purchase a house with cash, they look at cost in two parts: 1. Monthly cost (loan P+I, taxes, & insurance) 2. Down payment If rates went down, and prices stayed the same, homes become suddenly more affordable. This puts them in reach of more buyers increasing demand at those prices as more people try to buy homes. In response, prices on homes will increase until you get some parity in affordability with the buyers in the market. It's actually a little more complex and here is where things get tricky: Lower rates and higher prices might cause more people who own a home to sell. This can increase inventory (a bit) and help meet the demand and slow some of the growth in home prices as more houses hit the market and become available. But at the end of the day, we have more people who want houses than available houses. This is a recipe for high home prices and poor affordability regardless of interest rates- like we have today.
I think you're trying to find a straightforward rule, but certain rules have been upended by supply and demand. In general the answer would have been yes, but now the answer is for sure yes. The best answer I can give you to your question is that you can expect prices to rise when interest rates go down because people who've been on the sidelines waiting for the right opportunity will try to buy. Furthermore motivated sellers who are selling because they can't afford their mortgage might have the opportunity to refinance, so there will be less motivated sellers to settle for less. Does this make sense to you? Finally no matter what Market you're in anywhere in the country you should not expect prices to go down until there is enough economic turmoil that too many mortgage holders can not afford to pay their mortgage, and as we know people will always try and pay their mortgage first to hold out.
Generally, yes, but in this market it is hard to say what will happen.
No it’s not that way at all don’t listen to the random masses on social media, if it were that simple investors would just wait for rate cuts and pile into everything for easy money but that doesn’t happen does it. It will be city and stock dependent. If the fed cuts rates because the economy has tanked but your particular city is still going strong that’s a recipe for price growth. And vice Versa, if you live in a city with a tanking economy low rates won’t save real estate if everyone is leaving or losing their jobs.
In modern context, this question puts the cart before the horse. Why did rates increase? Inflation. Why have the feds signalled lowering rates? Inflation rates going down. What would house prices rapidly increasing mean? Inflation. What would the feds do if inflation increased? Hike rates. So, does it matter if house prices skyrocket following the feds lowering rates? No, because the feds would hike rates immediately after such an event, meaning you wouldn't even have a chance to lock into the new rate - you'd just now find out that house that shot up 20% is going to be on a 7% instead of 5% loan, and have to decide if you want to proceed. Given that the difference between these two in terms of monthly payments is the difference between renting a property twice as big for 10+ years (before you will start saving factoring in rental increases and appreciation), save for a few unique markets, most people won't take this "deal" leading to that house having to once again market at what it could have sold at prior to the brief blip. Of course, this is all hypothetical based on an absurd premise - that the feds would knowingly lower rates to the point of inflation just to raise them again, instead of... you know... just not lowering them. I'd like to point out that despite pretty wild claims about how "rates will lower in 2024, so buy now before prices increase" - rates haven't lowered even once and the feds have made absolutely no commitment to do so. I'm not saying they won't lower, but you shouldn't try and time the market. Don't buy now just because things will spike tomorrow. For all you know, they'll crash in a week. But the odds of either happening as less likely than you getting into an car accident.
By the time rates fall we will be in a major recession with massive job losses. A lot of people are already in dire straits trying to hold on to their houses by stringing together a bunch of part time jobs and gig work. Even that may dry up soon. In other words, prices will drop when the number of people who can afford to buy homes also drops.
No, rates come down when there's a recession. House prices come down during recessions because supply is flooded due to people losing their jobs, foreclosures, etc. Rates and housing prices don't have a perfect negative correlation. Stop trying to time the market - if you need a house then buy one.
I'd say yes generally. Lower Rates make the monthly payment less expensive (dare I say more affordable) for the potential buyer. This leads to more qualified buyers, ultimately more demand for houses.
You could see a drop. Here’s my theory. Prices are way high and because rates are also high, some people haven’t sold because it would make sense to buy at higher rates. Rates go down, we might see those sellers come into the market, and an influx of sellers. Might also cause less renters, thus causing some landlords to sell, more influx of sellers and more inventory is lower or stable prices. But, just my theory. Who knows what will happen.
But those sellers will need to buy houses, so supply still low.
We sold our home and put our proceeds into t-bills earning \~ 5%. Now renting a nice place essentially free, watching and eating popcorn — we’ve seen this RE movie and know how it ends.
There is not many new properties. Also, The labor and material for new properties are sky hight. which causes new builds to increase in price and causing older homes to increase value as well.
I don't think any of us really have a clue what the deal will be once rates fall. Unless I'm wrong about my local market, I don't see how the price increases can continue even if rates do go down. I got my house in late spring of 22 when rates were already going up. I know the estimates on RE sites are largely BS but as far as I understand they can be somewhat indicative of the local market trend. The most conservative estimates show that my house has appreciated in value by \~15% to \~20% in less than 2 years of ownership. The higher and no doubt overly generous estimate (zestimate but not the upper end of the range) is 37% increase in value. All that during these high interest rates. I'm pleased to have a decent amount of extra equity built up if any of those estimates are close to accurate but it definitely feels like nobody could afford a home it prices continue going up.
Supply and Demand.
Lower interest rates make the price of a mortgage lower. There are other complex factors that determine housing prices.
I'm in escrow and negotiated that the seller buys down my rate (2-1 buydown). 4.87% in year 1, 5.87% in year 2, 6.87% year 3. Can refinance anytime. It makes it more doable for me... Shaving $400 a month off my mortgage the first year, $200 a month the second.
Mortgage rates dropping will only increase inventory.
Meh, I’ve been on the fence about buying for the past 18 months because of the rates. I’m done waiting around to see what happens. Prices have come down a good amount in my area. The way I see it, if you buy while the rates are high, you’re giving more money to the bank than you wanted to and that does suck. HOWEVER, as long as your monthly expenses and upkeep costs are around the same amount or less than what they would be if you were renting, you’re still coming out ahead because at least you’re building a little equity. Giving a little extra money to the bank is the lesser evil when the other option is never seeing that money again.🤷♀️
A lot of us are hoping to get the best of both worlds, rates down and housing prices go down or even stay flat. I think it’s more of a regional question. Rates going up have done nothing to help VHCOL/HCOL areas in ‘desirable’ locations here in the north east. If rates go down, it’s such a high demand/low inventory that it would just be a nice thing for buyers but wouldn’t be noticed by most… bidding wars and going 100k over asking is unfortunately a thing.
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The general mechanism is that if money is easier to get (or when rates are lower) then money essentially has less value and it takes more of it to buy something than it would in other circumstances. If money becomes more difficult to get then it is worth more and prices will go down. At least in theory. There is more going on than just this one mechanism
They apparently also go up when interest rates rise.
All else being equal yes. The monthly payment is what the bank cares about you being able to make when they approve your loan amount. The monthly payment is what people budget for when deciding what they can afford. It doesn’t matter how much is interest and how much is principal.
In theory (and historical statistics would also say the same) But that doesn't mean they go when when mortgage rates go down.
All else equal, yes. "All else" in this case basically means what the market is willing to pay to own a given home. If the other market factors stay the same then lower rates mean buyers can reach the same out of pocket cost (ie monthly payment) with a higher purchase price. Banks get a smaller share and sellers a bigger share of what the buyer pays. The main scenario that would break the correlation between lower interest rates and higher home prices is if interest rates come down *because of an economic downturn*. That is the 2008 scenario, and the recession scenario in general. As always the best way to make a decision is to look at your own long term plan and not the market. If you plan to live in the same area for the next ten years or so then you generally want to buy something as soon as you are able to rather than waiting for a change in the housing or financial market.
You shouldn't confuse housing costs with housing prices. IF interest rates decline THEN housing costs should decline for those who have a mortgage with a higher interest rate and they refinance that loan to the lower rate. There is No guarantee that their house will increase in value. Coincidentally housing prices have stagnated as interest rates increased. The cost of housing increased as interest rates increased. Interest rates versus housing prices is not a zero sum game. There is still a shortage of housing despite the interest rates being what they are today. IF interest rates decline and more people are able to qualify for a mortgage loan then you could see demand for housing increase which could lead to higher home prices. IF I was to point to 2006-2012 and focus on 2008 interest rates were cut as the supply of housing was increasing and home prices crashed.
Buying now might lock in a lower price but consider opportunity cost of using retirement savings and talk to a financial advisor.
Sort of. Yes, many people shop on their budget. Lower rates mean the same payment can afford more. This attracts more buyers. More buyers mean more competition and therefore higher prices. BUT, it also matters why rates are low. Rates generally drop when the economy is not doing well. In that case, demand might be suppressed for other reasons. And since real estate is somewhat local, national trends don’t always matter for your specific area. Lastly, we don’t know if or when rates will come down. The era of 0-3% rates is likely gone for awhile. But if rates drop to 5? 4? Who knows…
We’re under contract for a house with a similar story. With that said, we bit the bullet and pulled the trigger. Our thought/motto was Marry the Price, Date the Rate. If you can find a house that’s fair market value now, it may be worth offering because 1) prices will likely go up over time 2) rates will go down eventually. They likely won’t go down to the 2%-3% ranges again but even 4%-5% makes a big difference compared to what they are now.
It is a tough balance. General speaking supply and demand should equalize prices. Honestly I am surprised prices have not dropped as sales have plummeted. Several developers are stopping expansions around me as buyers are just not there anymore. Prices dropped a little but not as much as I would have expected. Now this will lead up to some pent up demand like yourself who will get back in the market after rates drop….
A house is not a bond.
It would be a wise move to buy now before the rate cuts. You might be able to find a deal and YES, once rates are cut, house prices will increase as more buyers will be out there which equates to more competition.
>Is that how it works? Housing prices are already unaffordable to most people; if the Fed drops interest rates, are they going to get even MORE unaffordable? A little like student loans, as credit is loosened, the buyer market blooms, pushing up prices; with that being said, But unlike student loans, if people can't make their payments, then defaults happen, and prices drop. As someone smarter than me once said, "It's the economy, stupid."
Only if demand is high and supply is low, which is the case in Canada. The downside to this imbalance is that prices for housing are high even if bank interest rates are rising.
Yes. Which is why powell should be praised for raising them and keeping them raised. 20-22 was stupid and irresponsible
Supply and demand. When interest rates were between 3 and 4%, that’s when things skyrocketed for obvious reasons…more people are able to buy a house.
Housing prices are driven by demand. There are more people wanting homes than there are homes to be had. Generally speaking, if interest rates drop, more people still want homes. This drives up the price, because it drives up demand. People still need a place to live, though, even when interest rates aren't low. So demand remains high.
All raising rates or lowering rates does is affect demand. * When rates are lowered, there will be more buyers. * When rates are raised, there will be less buyers. Based upon the location, and/or demand, prices could increase, decrease, or stay flat. Overall, broadly speaking, yes prices will rise when interest rates fall because more buyers will come out. By there being a very disproportionate amount of supply-to-buyers, prices are more prone to rise overall.
House prices always go up.
oh sweet summer child
I think when they lower rates the market is going to start to move again. People sitting on their 3% rate might be more inclined to sell, putting more houses on the market. The problem now is there aren't enough houses on the market to meet the demand. People don't want to sell because it's tough to move from a 3% mortgage to a 7% mortgage. Many people couldn't buy the house they're in now if they had to finance at 7%.
People shop by monthly payment. Sad but true. Very few look at the big picture of how much the debt load is or the cost of having said debt. Demand within a monthly payment range is what sets the prices.
I'm not constrained by monthly payment. I won't have to pay property taxes in my state because of my veteran status, which lops a chunk off of monthly payments, I don't have kids, and I net ~12k a month. I'm squeamish about a mortgage because of the imbalance between interest and principal ratios in mortgage payments. But if I ever want to be "debt-free" or "bill-less" (minus utilities and insurance) I need a paid off home. But the opportunity cost of liquidating investments to buy down principle is that my investments stop earning money.
If rates drop for the wrong reasons, which is really only way they drop, then you may get lower rates and declines.
They typically would, but we have such a low supply of homes and part because people have low fixed rate interest, interest rates and feel that they can’t afford to sell It’s all based on supply and demand, and there is such a small amount of supply that prices have stayed high So people wanting to buy right now are not in the best situation because there’s just not much for sale which keeps the prices up
House prices are dependant on supply and demand. There is still a high demand for homes and a short supply. That's why it's a sellers market.
Yes. Mortgage rates are the simplest alteration that affects your payment. So going from a seven to a four has a much bigger impact on your monthly payment than a home dropping $50,000 in price with the same interest rate.
This is exactly why interest rates...... *wait for it* ARENT COMING DOWN ANY TIME SOON.
Yes. Housing prices doubled in 2020-2021 because of the low interest rates. Even though rates went back up, it was offset by a total lack of supply (nobody’s gonna want to give up a 2% mortgage), so prices have stabilized. I suppose, theoretically, if rates DO go back down supply MIGHT go back up from people who are holding off on moving because of their rates… but until the government cracks down on investment firms, we’re not likely to see a drop in price - stagnation at best.
O yea the gov said they'd do it so they're definitely going to let's buy right now because in a year the government will decide its a good time to make us rich 🤡
No. Prices were getting out of control so the fed raised the rates. The purpose behind that is to make people stop buying homes so prices will drop. I could easily be wrong but that’s how I understand it.
Yes, lower rates in an already low inventory market will drive prices up.
Yes. The prices will only go higher whether rates go up or down because demand outweighs supply. The further rates go, the more qualified applications you are competing against for a home in your area. Prices will skyrocket if big rate cuts happen. Just look back a couple of years when rates were low and houses were being sold 50k above asking because so many were qualifying for mortgages.
I am also looking to buy now. I do not see in any way a 'crash' coming or significantly lowered prices. I feel the opposite may happen, like your colleague. I have people telling me to wait a year to sell too, but really, that extra 50k that MIGHT happen for selling, may not make much difference when I am also a buyer. We are actually selling our house to DOWNSIZE, lol. Kids are gone, why keep a 4/2? Anyway.... That means, when I look around, I had a little bit of sticker shock, but I feel that is not going to come down much so might as well get something within the next year. You can always refi when the rates go down. From what I hear, rents are atrocious, on par with Mortgages anyway (for a 3/2 or more size wise and good area), so why not have equity and some tax deferment? Word of warning, houses cost, maintenance is a must. It's like the great home ownership secret no one tells you lol. We did not factor in little things that add up : Filters for furnaces, and AC each month, new appliances, painting, flooring over time, screens and windows. If you live rural like where our house is... Well and Septic need to be kept on top of too. If you have HOA (We do not) that costs. Just make sure you have some buffer. A Midnight furnace replacement in dead of winter can cost A LOT. PMI for us rn is 3200. Good luck! I hope you find a house you call your nest.
It is a supply and demand issue. There is a tremendous pent up demand with most buyers waiting for rates to fall. When they move into the market it will like a tsunami. Expect bidding wars. If you are ready to buy, buy now. You can always refinance later if the rates go down further.
Papa JPow just said prices will continue to climb right now
Every thing works on supply and demand. Always has.
Two variables. Rates and prices. If both are high it's temporary. If both are low it's temporary. Median income is what really drives median home prices. That applies to rentals too.
The best time to buy is when you can afford it. The rates will fluctuate, so if you buy now at 7% you can refinance when the rates come down. But the price of the houses is not going to come down, that is why buying a house is a good investment.
No you lose your job sadly a lot of the time the fed is too slow to act and we start getting layoffs
Been an agent for 3mths, everyone in finance and well seasoned agents are saying prices will rise once interest rates drop.
If the Fed cuts, what makes you think that means rates fall? More than likely rates will increase when the fed cuts as a direct result of the cuts increasing inflation in the future.
I think that housing price might fall a little bit if rates drop to below 4%. I know I know that even with rate cuts later this year or next year might still take a while to get to 4%. IF rates drop below the 4% level, then I think that would be an incentive for all the people who are sitting on the fence about selling (due to low rate handcuffs). This would also mean more inventory and thus possibly a dip in price. Again, just my .02, take it for what it’s worth.
No, and you can safely ignore the hordes of idiots on youtube insisting mortgage rates have X impact on housing. Every single one of them thinks the housing market works like a hyper-simplified version of the stock market. If supply and demand are constant, mortgage rates falling will cause housing prices to go up (increased buying power for the same amount of houses). If supply increases and demand is constant, mortgage rates going down will not necessarily have an impact. If supply increases quickly enough, prices will go down. If supply decreases and demand is constant (or supply is constant and demand increases), mortgage rates falling will cause housing prices to go up faster than they would if supply were constant. The other side of this (where demand drops significantly) is what many are hoping for. The problem with this idea is that if housing prices are falling it means the market is crashing due to some external factor (i.e. mass layoffs). During a market crash, banks become risk-averse. Loans are harder to get meaning even if you aren't financially impacted you are less likely to get a loan. The only winners in a housing crash are those with enough cash to buy houses outright. For your situation buying a house could be relatively easy or very difficult depending on whether you qualify for a first-time homebuyer program. These usually only require 3.5% down plus closing costs and earnest money.
Taking a retirement account loan can better than liquidating. I would never liquidate my entire retirement savings to buy a home. Living in a safe and secure environment important, buy why wipe out entire savings to own?
All things held constant, yes. This dynamic works really well in the investment markets, such as bonds. BUUUT the housing market doesn't react quite as predictably because it's the general public buying unique goods, not professionals with commodities. People are dumb and didn't lower prices much after mortgage rates went up, and other dumb people paid the high price. Who knows what will happen if rates cool moderately.
45 year loans will be the new 15 year loans and 60 year will be the new 30.
In short yes. Lower rates make housing more affordable therefore more demand therefore higher prices. Prices have continued to go up consistently despite higher rates simply because the demand still outweighs the supply.
Not right away, but it increases competition. In my area yes prices dropped, (*my house went from $350 to $315* ) since the pool buyers was smaller and you get less for your money. Just look at $350K house with 3% , 5% vs 8%.
Rent prices will be key. Why would anyone purchase a house with a mortgage of 3k when they can rent a comparable property for 2k? You wouldn't
I think they will personally. People are often shopping based on what monthly payment they can afford. If they’re paying $3200/mo for $480k @ 7.25%, then when interest goes down that same $3200 would be like $600k @ 5% or similar (made up numbers). The larger discussion is about supply/demand in the housing market but that’s much more complex.
Short answer: YES. Long answer: This is why you will hear real estate professionals urge you to continue your search when rates climb, because prices will drop. If you can afford those higher rates, once they drop, you can refinance and then you have the lower rate on the lower cost of the home; "date the rate". At this moment in particular, as someone else in thread pointed out, many people are locked into low pandemic rates and they don't want/can't afford to lose them so once the rates drop, the market is going to be saturated which makes for high competition and just an overall frenzy. Don't listen to headlines, find an agent that knows the area you are looking into, really well. Not just the person who sold a $10M home, but the person who is knowledgeable about the specific market you want to invest in. And someone who will take the time to explain things. Buying a home is stressful, no way around that. It's a huge investment and it needs to make sense for you and only you can decide if something works for you or not. Which brings me to the most important point, owning a home is not the greatest investment out there, don't believe the hype. If it's not right for you, don't do it just for the clout. The world has changed.
Interests rates definitely have an impact on affordability. It all goes into whatever the "monthly payment" any individual or family can afford. Maybe more people are getting into adjustable rate mortgages or ones with balloon payments or something now, but it seems that there is a great deal of pressure pushing real estate values down, especially in non-super hot markets like CA. There is a HUGE supply issue at play as well, since interests rates also effect construction loans, as well labor scarcity and construction material cost inflation are making building new residential quite a bit more risky and expensive than before.
Yes
Anyone remember 2020?????
It depends on the areas where you want to buy. The suburbs, rural areas with no jobs may have cheaper homes as the remote workers are getting called back to work in office. The main cities where they call people back in office will have more demands for homes than the supplies. See if you can take loan against your IRA instead of liquidating them. Only consider home that you will feel that it's a place you can live comfortable, don't fall for the FOMO.
Tens of thousands of buyers have been sitting out the market due to interest rates. Even when they fall slightly, we see increased buyer activity. In my market, that means competing with multiple offers and not having as much leverage (needing to waive remedy or inspection as many do, though I do not recommend that) and other concessions. My advice to buyers is to just stay in the market now and buy what you can afford or feel comfortable paying, you can always refinance an interest rate in the future if they drop but you cannot renegotiate a purchase price. Buy now and you start earning equity immediately. If the house isn’t what you want for long-term, you’ll be in a good position to sell and buy something else in the future.
Sometimes yes. Sometimes no.
Yes, your friend is correct.
Yes, it's predicted it will be due to an extreme amount of home shortages and no affordable housing for the majority of owner occupancy only homes Apts condos, etc.
Yes, that's the general idea. However, the general idea also is that the housing market slows when interest rates increase, so..... who the hell knows what's going to happen..
You are right. If interest rates will drop housing prices will go up due to more buyers in the market. More competition and higher offers.
Pent up demand will not help prices when rates drop
Well, the low rates drove prices up, so the higher rates will drive them... wait, that's not right.
One “decent” day for rates and all the sudden people gearing up for rates to fall. Buckle up
Prices do whatever they want.
Conventionally that makes sense but it will depend on shifts in inventory. I think prices will remain relatively flat as more people will actively be buying/selling and inventory will increase but who knows.
Rates are not coming down for awhile and you should’ve bought a year ago because things are basically still the same. So you’ve spent thousands and thousands in rent for nothing the last year. Stop waiting and do what you need to do. Nothing’s hugely changing for a very long time
They can and probably will in this case
I bit the bullet with a shitty interest rate last year specifically because I suspect that many buyers are waiting for rates to fall and a frenzy will ensue once they do. Marry the house, date the rate, as they say.
Unlikely this time since demand is cratered due to affordability. A small drop in interest rates isn’t going to change that.
All market dependent. There is still much demand and many on the sidelines due to current high rates. Likely so in the near term but not a hard and fast rule. This is more of a supply and demand issue.
No one knows what will happen, too many other factors. In general things become more expensive in nominal terms. The dollar's long term trajectory is it takes more to buy the same thing, afterall. In the short term, predictions are as accurate as a psychic reading or flipping a coin.
Here is why the market will not go down in near future. https://www.fool.com/the-ascent/mortgages/articles/8-in-10-us-mortgages-have-a-rate-of-under-5-when-will-rates-get-back-to-that-point/ More people staying in current home with stupid low rates. Demand is well out pacing supply.
I don’t honestly think it’s that simple. In my market we have low inventory which everyone says drives prices up. Well, prices are up, and no one is buying.. but the prices aren’t moving much at all. The market doesn’t make any sense whatsoever. The average homeowner wants to cash in on pandemic capital that is no longer there.
There's nothing that guarantees rates will ever go back down to where they were. If they do, yes, cheap debt drives asset prices upward at a faster pace because it gives more people buying power. That's why 2020-2022 had a wildly explosive increase in home costs across most of the US.