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Comment by bushbaba | Hacker News Reader

Mortgage rates went from ~2.5% to 6% in a matter of a few months. People generally feel that given the low supply of housing that prices wont go down, but instead will stagnate with higher rates. If that's your belief you'd be in a mad rush to buy a home as your primary residence before rates go even higher.

Personally, if rates continue this path housing prices will go down. A 500k mortgage at 2.5% has the same monthly payments a 330k mortgage at 6% or 225k at 10%.

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I struggle to reconcile this with the number of cash buyers, though. Higher rates aren't going to affect their ability to pay.

Most cash buyers are flippers doing it with bank loans. They’re in a very vulnerable position right now. The smart ones will get out and stay out. Most are greedy.

>They’re in a very vulnerable position right now.

Why? aren't the rates locked in for the duration of the mortgage (25/30 years)? The only way I can think of this going wrong is doing your budgeting when the rate is 2.5% and then not taking the rising rates into account, but presumably the bank will cut them off first.

Flipping implies selling the homes at a profit, which is unlikely in a rising interest rate environment.

Flippers either buy with cash, or they do all interest loans, and really factor in how long they take to flip the house. Interest rates or going long on a build can really dig into profits. You can't get a 25/30 year loan on a flip as it's not your primary residence, and you're limited on the number of those you can have per year.

So I figured this out, there are now companies that will give you all cash from a loan for a fee.

Wait wat?

With a purchase mortgage the bank is involved in the transaction in multiple ways, for the bank's protection. Appraisal, inspection, etc. You're saying there is some magic wand to be waved that makes the bank not care about its exposure anymore?

Locking in a great rate seems misguided if the low rates were inflating prices. You can always refinance a high rate but you can’t renegotiate what you paid 5 years ago.

It’s even worse for the all-cash buyers since they’re not sensitive to the interest rate anyway… but they probably have other motivations for parking their cash in real estate.

Is that in Canada? In the USA, Freddie Mac says 30-year fixed rates are typically 4.42% It took a year to get there from 2.75%, and it never hit 2.5%.

Just poking around online it seems 5% isn't uncommon, some higher, some lower and it has happen relatively quickly. I'm not surprised if people who have a locked in rate are just eating the cost of outbidding to win.

Bankrate says this though:

On Sunday, March 27, 2022, the national average 30-year fixed mortgage APR is 4.570%.

I locked in 2.49% rate on a 30yr fixed two months ago in the US basically betting that rates were about to skyrocket and I wouldn’t be able to buy again for a long time at a rate this good. To get a rate that low you have to pay it down in points. Otherwise it would have been closer to 3%.

I don’t expect Bay Area nimbys to get any better, but there is a risk people just leave the bay (most of my friends have left). You can get way nicer housing in austin, Denver, Miami, dc, LA, San Diego, etc. for cheaper. Socal has even better weather and with remote work is super nice.

Florida is also way nicer for taxes. I forgot Seattle too.

And here I am, relieved to have locked in 3.75% a couple of weeks ago instead of 4.75%

Still a good rate imo - loans are a decent hedge against inflation. Plus you have a place to live without worrying about rent shifts (main risk is if you’re forced to sell for some reason at a bad time).

I’m happy we decided to do it.

A good rate is anything that let's you sleep a night.

I know it's mostly platitude but I don't have the time or the depth of knowledge to time mortgage rates or the market so I mostly ask myself if I can afford it.

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