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Comment by stouset | Hacker News Reader

> Worst case scenario is recession, you have reduced income and housing prices plummet - I don't see this playing out, running low interest rates to high inflation seems likely to me.

And the standard case scenario is rising interest rates, where your highly-leveraged asset drastically underperforms the market (and may even produce negative real returns, if it doesn't keep up with inflation).

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The FED and mainstream economists know that if interest rates will go up it will create huge deflationary forces (on top of existing ones) so they will do everything in their power to keep them low. I doubt we will see high interests for the next few years until debt ratios go a bit lower. The FED even mentioned that they’re willing to allow inflation to run higher for a while. That being said, it’s not a given that we will see inflation.

For debt ratios to decline, people have to stop going into debt as much. Or, they pay off their existing debts instead of using that cashflow to qualify for more debt. It's hard to imagine reducing debts unless you have a shock like '08 GFC, which changed the standards for acceptable underwriting.

> For debt ratios to decline, people have to stop going into debt as much.

Low interest rates and high perceived inflation causes people to take on increasingly higher amounts of debt. In some cases, it makes sense to borrow at 3-8% interest if you expect an ROI of 12-20% and you set aside 1/3rd of your gross return for taxes.

However this system has some positive effects. If you go out and build 3 homes and people buy them, you’ve effectively created 3 homes worth of wealth.

Disagree, rising interest rates in this economy would lead to a recession - the worst case scenario.

I don't see realestate underperforming inflation without some massive changes either.

And in case of rising interest rates, the first thing I expect to pop is overvalued stocks and money parking commodities.

The long term historical trend is falling interest rates. So at least for the last 100+ years, the standard case scenario has been that your highly leveraged and refinanceable asset outperforms the market.

The 18% interest rates in the 70’s are frantically waving their hands as an exception.

I’m eagerly awaiting my refinance into an 0.725% rate mortgage.

Which only matters if you want to sell. So never buy a house you don't plan to live in for a long time.

I don’t know too many people who would be excited at continuing to pay off a $500k mortgage on a house worth $400k.

Also, the bank will ask you to post the difference in money ASAP. The bank never loses.

Banks in the US don't do this on mortgages.

Interesting, looks like you're right. Also looks like you can improve the home (even DIY) and use that improvement to erase negative equity. Though of course it has to be the 'right' improvement, like kitchens and baths.

With fixed mortgages this is true, but if you get an adjustable rate, you’ll need to refinance and that’s when you need to requalify and meet loan to value ratios.

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