Are current mortgage rates really that bad?

[3.0L]

Current 30-years fixed is ~7.3%. Current 15-year fixed is ~6.3%.

I hear a lot of howling. Okay, but...

My wife and I bought our second home in 1984. Our mortgage rate was 14% for a 15-year fixed. Somehow, we managed to pull it off for several years, then refinanced when the rates came down. We weren't rich, either.

[dmatre]

My first mortgage was 7-3/4%.


Buncha whiners…..

[________]

Well, what happens is that you’ll pay more for the home you already own when refinancing.
If selling, prices are lower because there’s less cash available (supply is higher).

Anything 2-3 times higher than before is higher. Same can be said for gas prices when compared to the 70s, for example.

[gatorfast]

Interest rates were super high in 1984 but $150k also bought you a nice house in a nice area. The recent large increase in rates combined with super high home prices makes a big difference in monthly payment.

[NickyC]

Comparing home prices now to home prices in 1984? I'm old enough to remember when homes were a place you lived in, not something to used as an ATM. The government has absolutely f'd up housing to the point most young people are completely screwed (let alone millions in other age groups). Letting millions of new, ahem, citizens in each year ain't exactly helping things either. It's a complete disaster.

[curd]

The problem is that the cost of living has increased significantly, while wages have remained relatively static until the last decade. When interest rates were 14%, it was during an outsourcing manufacturing boom that kept all other goods relatively inexpensive. Today's world is in a much different picture. This is coming from someone with a business in Real Estate sales & investments.

What was the purchase price for your and your wife's home in 1984?

[NickyC]

Originally Posted by curd

The problem is that the cost of living has increased significantly, while wages have remained relatively static until the last decade. When interest rates were 14%, it was during an outsourcing manufacturing boom that kept all other goods relatively inexpensive. Today's world is in a much different picture. This is coming from someone with a business in Real Estate sales & investments.

What was the purchase price for your and your wife's home in 1984?

Yep, not to mention the fact you have shitty investment firms and banks buying up larges swaths of homes (where they come in and pay way over the asking price thus locking out individual buyers), then turn around and sell the homes for higher or rent them out at astronomical prices. The fact this practice isn't made expressly illegal by our wonderful government is sickening. These sickos are literally buying up entire neighborhoods with phony money printed by the Fed.

We still haven't even come close to paying for the sins of the early 2000s, where banks would loan to every single degenerate liar who came in there with no proof of income and got an ARM on a house they could never afford in the first place. Couple that with the government forcing lending to certain groups of people who, once again, could never afford the house in the first place only made it even worse.

I really feel bad for the young people of this country. They're going to own nothing, love it, and eat it all up along with a side of bugs.

[SpeedBuggy]

My wife and I purchased our first home in November 1980, $44,000 w/ 20% down @ 12.25% APR

[Tyga11]

What do you mean really that bad? If you put down 20% on a $500K house in Phoenix you're paying $3,400 a month right now. That's a ton of money. The middle class continues to get screwed.

As the poster above me said, institutional investors destroyed the market. They accounted for 40% of home sales in Phoenix in 2021. They artificially drove the market up, made a killing, and surprise they pause home sales once they get their profit.

[floridaorange]

never forget

https://www.npr.org/2011/05/02/13584...nst-the-market

[F32Fleet]

Originally Posted by NickyC

Yep, not to mention the fact you have shitty investment firms and banks buying up larges swaths of homes (where they come in and pay way over the asking price thus locking out individual buyers), then turn around and sell the homes for higher or rent them out at astronomical prices. The fact this practice isn't made expressly illegal by our wonderful government is sickening. These sickos are literally buying up entire neighborhoods with phony money printed by the Fed.

We still haven't even come close to paying for the sins of the early 2000s, where banks would loan to every single degenerate liar who came in there with no proof of income and got an ARM on a house they could never afford in the first place. Couple that with the government forcing lending to certain groups of people who, once again, could never afford the house in the first place only made it even worse.

I really feel bad for the young people of this country. They're going to own nothing, love it, and eat it all up along with a side of bugs.

It's not that many actually but they will buy more as new homes reach completion.

[iminhell1]

Weren't half the infomercials of the 70's, 80's, 90's, 00's, 10's all about how you can invest in real-estate for little to nothing and make profits? Huge profits.

Well ...

[Nuckle]

It is an interesting question and really dependent on where you are in life. My first mortgage which was like 16 years ago was at 5.625%. At the time I thought it was a great rate. House appraised at $400k, same house today is $700k. Current house is financed and 2.52% and I can tell you that 7% would be a deal breaker. I would live in something less. Housing prices may/should catch up with the interest rate hike. So to the original question, 7% is fine so long as you are buying at a price that works for the rate. We also have a second home and it is at 3.23%, I would not even consider having it at a 6% or greater rate unless it was 30% less in cost. It will be interesting to see how things go.

[2000cs]

This article has some good data/graphs. https://themortgagereports.com/61853...art#historical

I think the issue is how fast we went from ~2% to ~7% on the 30yr fixed. The run in the late 70s-early 80s wasn’t as fast for doubling+ as this year has been for tripling+

We will adjust. ARMs will return in force, for example. It definitely reduces affordability, forcing people into lower cost homes than they had planned, but in time wage inflation will catch up. That was the deal in the 1970s - buy more house than you can afford on an ARM, let your income catch up (due to inflation), then either sell (trade up, repeat), or convert to fixed mortgage. Like most financial strategies, it worked well right up until it didn’t.

[M-technik-3]

What is also painful is next year our tax rates will jump dramatically again and you my house is still really only worth 250k max no more. The property and rd does not support it being valued any more, but the town can raise the value if they want.

And they will last year my house jumped 12% which is not much but it hurts my wallet.

[ryan stewart]

These aren't historic rates but everyone has been spoiled by free money for decades. I'm only 41, I've only known a Greenspan-on fed policy.

So it's more just shocking, especially since (as pointed out) were seeing those rates on still expensive properties.

I'm locked in though at 2.68 for 15 years. I had a 30 @ 4.3 so I just kept the payment the same and am paying less interest. My savings rate is higher, LOL. Only catch is I'm stuck, can move (not that I really want to).

[Chick Webb]

Originally Posted by ryan stewart

Only catch is I'm stuck, can move (not that I really want to).

Aye, and there, as the Scots would say, is "the rub". It's only when we get to the point that people have to sell, absolutely positively no BS-in have to sell, that we will see the full effect of the current interest rates.

If you're moving for a job, or you have to return to where you were raised to take care of your aging parents, or (unfortunately) you've lost your job and can no longer afford your mortgage, you generally have to sell. That's when prices will come down. And they will. Significantly. There are just not going to be buyers at the old prices, because few can afford the note.

There are exceptions, of course, but it's just supply/demand in the end, and demand is being crushed. Supply is still low, but that's in part because there aren't a lot of people who have to sell. Yet. Give it time.

[dreamingat30fps]

Originally Posted by ryan stewart

These aren't historic rates but everyone has been spoiled by free money for decades. I'm only 41, I've only known a Greenspan-on fed policy.

So it's more just shocking, especially since (as pointed out) were seeing those rates on still expensive properties.

I'm locked in though at 2.68 for 15 years. I had a 30 @ 4.3 so I just kept the payment the same and am paying less interest. My savings rate is higher, LOL. Only catch is I'm stuck, can move (not that I really want to).

This. The question really depends on what you are comparing them to. In my home buying lifetime these are the highest rates I've seen so yes, for me they are really that bad. Our FL home was at 3 something % for 30 years although I paid that one off already. I had a feeling something was going down so I actually did a cash out refinance on the NC home a few months after we bought it last year and locked that in for 15 years 2.75%.

We have been looking to move to another house that better fits our needs in FL but prices are still significantly higher so even selling our house we would have to probably come up with some cash also to get anything we would consider an upgrade. Then you have the higher mortgage rates which are not a huge deal as it would mostly be cash, maybe a small mortgage I would pay off once shit starts coming back. However I then have the issues of taxes. A lot of these houses are being taxed at values that are like 1/2 of what they are selling for now. One house we were looking at online had a tax value of like $250k and paid $5k in taxes. It's now selling for $600k... now maybe the assessed value wont go all the way up to $600k but considering it last sold in the $300s I'm sure it will go up significantly.

So anyways we just stay put and not deal with any of this.

[BRAKE!]

The above comments definitely highlight the circumstances that have led to this point - no accountability when lending money for homes in early 2000s (due to it being sold off as mortgaged backed securities right away), investment firms buying up homes at artificially elevated prices, the fed pumping in way too much money during the pandemic, etc.

But the question of - is the interest rate hike on a mortgage really that bad, comes down to a factor that can be controlled by the individual. How much am I willing to spend on a home and can I afford it? (vs can I afford it per month)

When you're comparing historic rates of mortgages to what they are now, they are very high indeed. And, of course, they are because they reflect federal fund rates. However, the Fed is also curbing inflation (recent Oct inflation at ~7% vs 9% from earlier months) and so it's reasonable to expect that as inflation gets under control, the federal funds rates will accordingly decrease and mortgage rates will be back to 'normal' levels. It's a common cycle of the economy as evidenced by many members who experienced it in the 70s and 80s.

So, is it 'that bad?' - only if you're trying to buy a house RIGHT NOW that you can't comfortably afford unless you can make the monthly payments work by increasing the terms of the mortgage paired with a low interest rate. OR, if you can't weather the storm of high interest rates early in your home ownership until you can refinance.

[Turkish Pickle]

"Is it that bad" (This will be long)

Back in December 2020 I was getting ready to buy a house for $170k in the suburbs of chicago. Close to work, needed some renovation, but nothing I can't do while living out of one room. Deal fell through because of mortgage, I was quoted 2.95% conventional, 20% down, 30 years, was coming out to $1125/mo (incl taxes, fees, HOA) . This is on a fresh grad engineer salary, with a mediocre credit score. I wasn't making a lot but I saved some during college, and my parents were willing to help me out with the down payment. The $1125/mo monthly payment was considerably cheaper than anything I could find in the same distance to work (also in the suburbs).

Anyway, deal fell through. I ended up moving downtown for another job in 6 months anyway, one thing lead to another and I totally forgot about that place. A few weekends ago we were chatting with some friends, and I checked on Zillow - that same place is again on the market, with fresh paint, and the carpets replaced with (cheapo) laminate/vinyl flooring. No more than $10k worth of work especially if the owners were to do it themselves - I know this because I had budgeted that much, plus I'm in construction.

For what it's worth, looking at the listing now, I can see they got GE stainless steel appliances, and changed the countertops to granite. The carpets are still there in the staircase, the kitchen cabinets were not changed, nor were the bathroom vanities. Literally paint, some gray "wood" looking flooring, new countertops and appliances. Let's say they paid someone to do all of this, plus some "unforeseen conditions", and call that a $30k "renovation" on a $170k house two years ago. That would bring us to $200k.

I went contingent December 6, 2020, and it was closed by someone else February 2021. Was listed in October 2, 2022 for $240k, deal closed October 31st, 2022.

Now, I'm already in the hole for $70k based on purchase price. Count $30k off of it for the "renovations", and I'm short $40k. That's slightly under half my annual pre-tax income after 2 years out of school.

20% of $40k is $8,000. Now, if I hadn't bought my car, I could've saved it for down instead, and kept 20% down. That's fair.

Looking at mortgage rates now, I'm quoted $1793/mo per Google. Similar credit score as before, rate at 7.501%. Effectively for the same house, with some Home Depot-grade "renovations", I'd be paying $668/mo more. That rate would also mean my current car loan is "cheaper" than my mortgage.

So whereas 2 years ago the same house in 30 years would've cost me $439,000 to buy, now it would cost me $693,480. That's a difference of $254,480 that I pay over basically my adult life for the same "entry-level" house in a bum-fuck nowhere suburb. To put it into perspective, that's a used Urus, or a Ferrari 550 (my all-time dream car), AND cash for a reasonable daily like a brand new VW Tiguan. (If we're being pedantic, yes tax is a thing that I did not include here).

As a consolation prize, I will say my income has grown more than $700/mo, so it wouldn't be too bad of a drop in the bucket I guess. Compared with my current situation of downtown shoebox studio apartment+rented parking spot down the block, I'd be breaking even on monthly cost with a 3 story, 2 bedroom townhouse with a 2 car garage about 1h20 out of the city, so I guess there's that.

----

So yeah. It is that bad, especially for younger people.

I'm glad you got a house back in 1984, and could afford it on a 14% interest rate. I would love to do this calculation for your house value, how much it was worth 38 years ago, so please feel free to share if you want.

Just because you bought your house with 14% interest rate and now it's 7.5% isn't the only basis of comparison here, I hope my example has been helpful.

[eluded]

It's a great wealth transfer from homer owners to the bank

[ryan stewart]

Originally Posted by Chick Webb

Aye, and there, as the Scots would say, is "the rub". It's only when we get to the point that people have to sell, absolutely positively no BS-in have to sell, that we will see the full effect of the current interest rates.

If you're moving for a job, or you have to return to where you were raised to take care of your aging parents, or (unfortunately) you've lost your job and can no longer afford your mortgage, you generally have to sell. That's when prices will come down. And they will. Significantly. There are just not going to be buyers at the old prices, because few can afford the note.

There are exceptions, of course, but it's just supply/demand in the end, and demand is being crushed. Supply is still low, but that's in part because there aren't a lot of people how have to sell. Yet. Give it time.

Yep. These high prices just make my net worth statement look cool but Id be taking a bath moving any time soon. I am about 75% paid off so I could go "cash" if I downgraded or moved to a low CoL area but no way Im doing anything in Atlanta now.

Obviously it's a "first world problem" since I already have much more house than I need on a cheap mortgage thats locked in. The rates suck but I feel for people who are renting. One of my subordinates moved out of her parents and into an apartment and is paying almost the same for rent on 800 sq-ft and really close by so its not like she is in a considerably higher CoL area.