
Mortgage rates have been rising at a pace not seen in almost 50 years - spking
https://www.lmtonline.com/business/article/Mortgage-rates-have-been-rising-at-a-pace-not-12940865.php
======
cbayram
Good. Home prices have been out of control.

Cheap money along with mortgage lenders have done nothing but push home prices
to absurd levels. Local governments are complicit in this exploitation as
property taxes rise/reset, giving them a skin in the game. The only suckers
are the home owners, new and existing alike. They are being exploited by usury
and repayment of an unreasonable debt on a home ,which without lender money
would cost significantly less. Some long term residents are being priced out
due to rising taxes. Remember, the home value gains aren’t realized until you
sell whereas the interest payment and property taxes are each and every year.
This dynamic is turbulent and bad for health and continuity of communities.

Car and student loans are similar. It’s not suprising that tuitions are out of
control. Like with housing, the school administrators are complicit. Student
loans are perhaps worse. One can’t default on a student loan but the rates are
6-7%+ nevertheless.

Securitization of debt in dwelling, education and transportation are just
three examples of exploitation of the individual. The irony that some of this
liquidity is your very own retirement funds is not lost on me. A self-feeding
loop. One must work their entire life, often in misery to repay these absurd
prices. For me this is enslavement. Ideals aside, this is reality. Such is the
system and life. It’s survival. Having this perspective helps me refrain from
being trapped and make sensible decisions.

What’s the justification for this premium on this debt? “Umm, we provide
liquidity to the very asset bubbles we create. We assume the risk of default
on the loan which in reality Uncle Sam insures is against. Oh and also, we can
use that money in one of the other markets that exist for us to exploit.”

Tell me again, what risk are these institutions really taking?

END RANT

~~~
some_account
The system is set up to keep rich people being rich and in control, just like
always. It's not at all random who is in control. Someone makes those
decisions and it's not the public through elections :)

We never left the age of kings and peasants. We just have different names. The
difference in income has only increased, and the gladiator arenas used to
entertain the masses was replaced with sports and computer games.

We are more comfortable now though but so are the rich people.

~~~
azag0
There is some data for you:

[https://ourworldindata.org/wp-content/uploads/2013/12/Pre-
In...](https://ourworldindata.org/wp-content/uploads/2013/12/Pre-Industrial-
Inequality.png)

[https://en.wikipedia.org/wiki/Gini_coefficient#/media/File:2...](https://en.wikipedia.org/wiki/Gini_coefficient#/media/File:2014_Gini_Index_World_Map,_income_inequality_distribution_by_country_per_World_Bank.svg)

------
Bucephalus355
FYI, housing prices can rise as well as _fall_ for periods of 40-50 years and
this has been shown in the historical record.

The Journal of Real Estate Economics has a fascinating article from 2011 which
goes into this in detail, by looking at the price of land / various housing
structures in Manhattan and Chicago from 1920 to 1960.

By 1932, housing prices had dropped nearly 70% from their 1929 peak. If you
had bought a 1-story house in Manhattan in 1929, it would not be until the
mid-1960’s that you got to just break-even, let alone made any money.

[http://www.people.hbs.edu/tnicholas/anna_tom.pdf](http://www.people.hbs.edu/tnicholas/anna_tom.pdf)

Also for those curious, I suggest you search “home prices” on
[https://images.google.com](https://images.google.com). The very first image
is so laughable, and such a suggestion of the times we are in. This will not
end well.

~~~
dcosson
It'll arguably end even worse if they keep going up though.

~~~
ChuckMcM
I'll take that argument :-). If we enter a deflationary spiral in housing it
traps people with mortgages who find themselves owing more in their house than
it is worth (we saw that after the Mortgage meltdown). Where as if the prices
continue to rise, we see people who would prefer to own houses kept out of the
market, but their mobility is not impacted.

Of the two scenarios, I consider the deflationary one "worse" in terms of its
impact on more people.

~~~
dcosson
I can't follow this logic at all. When home prices go up, rents also go up.
How is your mobility not affected when you can't afford rent and have to move
out of the city? Or for the people whose rent goes above what they can afford
and they end up homeless?

If you're underwater on a mortgage, it's still the same payment month over
month that you were expecting when you took out the mortgage. It'll recover
eventually if you hold on. When you're paying rent month to month, that number
changes on you as prices rise and you can't just hold on.

~~~
ChuckMcM
> When home prices go up, rents also go up.

Not if the supply of rental units is increasing. One apartment building can
put 100 - 500 units on the market versus perhaps 10 single family houses in
that same space.

A good example of this in action right now is Sunnyvale, which has had rising
home prices over the last three years but flat rents because the number of
rental units coming online has greatly exceeded the available housing
inventory.

It would be accurate to say that _house_ rents go up with rising housing
prices, but it is not true that _all_ rents go up with rising housing prices.
What it does is re-factor the ratio of renters to owners in favor of renters.

~~~
poulsbohemian
@ChuckMcM - I always enjoy your comments, thank you for the perspective you
bring to HN.

I've seen the argument you present used frequently, and I can understand where
it is accurate in many markets.

In Seattle, a very similar argument is being made as a cure for the lack of
affordable housing -- greater density of construction will lower costs through
greater housing supply.

What I see happening in actuality though is that one house that would have
fetched ~$900,000 today (and maybe $400,000 just a few years ago, post-
recession) is torn down, and four condos put up in the same footprint. Ok - so
supply increased, right? Not exactly, because if each unit is priced at
~$700,000, it's still above affordability for most people. So then those units
get swallowed up by speculators and investors, the same as what's happened NY,
Paris, London, and Vancouver.

I also recall in Seattle there is some building regulation where new apartment
buildings get a tax rebate or some similar incentive that lasts 5 years - and
then after that the units get converted to condos (or maybe its the other way
around). In any event - my point is that there can be a lot of shenanigans
that get in the way of the market.

------
ProfessorLayton
Rising rates are going to cause havoc here in the Bay Area, and other metro
areas with extreme cost of living expenses and NIMBYism due to the following:

\- Interest rates were amazingly low in 2016. Many got their 30 year mortgages
locked in at 3.5%, or we’re able to refinance their existing one into that.

\- Rising rates may slow housing price increases, but due to NIMBYism, I don’t
foresee them coming down substantially, if at all. The Bay Area recovered from
the housing crash swiftly. In a normal market high interest rates should cause
prices to come down since people can only afford a certain monthly payment,
but an artificially constrained market is not normal.

\- Those locked into an amazing interest rate are inscentivized to hold on to
their homes, further reducing liquidity in the housing market. Combine that
with other incentives like Prop 13, ridiculously low SALT deduction and
lowered interest write offs for new mortgages in new tax bill, and you have a
recipe for disaster.

\- Further stratification between those who can afford to buy in these markets
vs those who can’t.

I suppose interest rates could fall again, they were also at record lows in
2013, rose, and fell again in 2016.

Tl;dr rising interest rates are going to freeze an already illiquid housing
market in SFBA, NIMBY metros.

Edit: I would love to read why someone disagrees with this analysis instead of
just a downvote

~~~
jgh
Aren't "locked-in" rates typically renegotiated every 5 years or so? So if
rates keep increasing the entire time some folks might be in for a rude
awakening in 2021...

~~~
marssaxman
That's an adjustable-rate mortgage. A traditional US 30-year mortgage has a
fixed rate for the entire term. You can refinance, if you want to, but you're
just getting a new 30-year (or 15-year) loan which pays off the old one, and
then you have a new fixed rate for that entire term.

~~~
sizzle
If my rate is locked in at say 3.5%, would refinancing ever work out in my
favor at interest rates >3.5%?

~~~
marssaxman
It depends on your situation. I did it last year, and I ended up with roughly
$700 more space in my monthly budget even though my mortgage interest rate
went up by 0.25%. I have enough equity now that I no longer have to pay for
mortgage insurance, which saves a lot, and I also took the opportunity to roll
up all my other debt into the mortgage. I'll pay more for the house over the
long run, but I have more flexibility in the meantime, and that's been
completely worth it.

------
mirimir
Missing from this article is that mean 30-year rates have dropped more-or-less
steadily from 9.25% in 1991, to 3.65% in 2016.[0] Also, even "rising at a pace
not seen in almost 50 years" seems iffy. Mean 30-year rates increased from
8.85% in 1977, to 16.64% in 1981. Rates increased at 2%-3% per year during
1977-1981, vs an 0.8% increase from May-17 to May-18.

0) [https://www.valuepenguin.com/mortgages/historical-
mortgage-r...](https://www.valuepenguin.com/mortgages/historical-mortgage-
rates)

Edit: Maybe they're adjusting for inflation. But they don't say so, if they
are.

~~~
aphextron
The late 70's/early 80's were a time of massive inflation. Take any interest
rates in this time period with a grain of salt.

------
koliber
It's May 25th, 2018, and 9 hours and 14 minutes ago GDPR came into effect. I
tried opening this link, which I imagine links to some news or media outlet.
This is what I see:

451 Unavailable For Legal Reasons Sorry, this content is not available in your
region.

~~~
Luuseens
Best of all, if you check the traffic, you still see it sending your info off
to Google Analytics.

~~~
Z-Widwil
Try uMatrix:
[https://github.com/gorhill/uMatrix](https://github.com/gorhill/uMatrix)

Super simple web connection switchboard by Gorhill (person behind uBlock
Origin).

It allows you to assign certain addresses and elements to block calls from/to.
For example 'www.google-analytics.com'. I use it as a catch-all when loading a
web page, then release elements that I want to load.

------
Danski0
Reading comments here it seems that US house owners consider 3.5% low, is this
correct? Article is locked for EU readers.

This just makes me even more scared about Swedens new normal that is 1.50%
(1.00% after tax deduction). Today I even get offered 0.99% (0.70% after tax
deduct).

What is currently "normal" rates in different regions in the world?

~~~
jbarham
3.5% in the US is probably adjustable rate. 30-year fixed rate is around 4.66%
([http://www.freddiemac.com/pmms/](http://www.freddiemac.com/pmms/)). Note
that, AFAIK, the US is the only country in the world to offer fixed 30-year
mortgage rates.

Here in Australia five year fixed rates are around 4.79%.

Swedish rates are crazy low. Lots of people are going to go bankrupt when
they're forced to renew at higher rates.

~~~
IkmoIkmo
US is definitely not the only 30y fixed country in the world... how many
countries are you familiar with? For example, the Netherlands has done 30y
since forever. Current rates are between 2.5% (best case) and 3% (worst case
with 0 down) for 30y fixed. 5y fixed is 1.2% to 1.6%, it's absolutely
ridiculous.

------
tomxor
> Sorry, this content is not available in your region.

lame.

~~~
self_awareness
Is this GDPR in action?

~~~
joering2
I confirm! Has nothing to do with Russia. Any VPN i tried located in EU cuts
me off. Meanwhile non EU IPs do work!

~~~
mirimir
Yeah, I've switched to a US exit.

------
IloveHN84
Stupid GDPR, the site isn't available

~~~
rvense
It's not the GDPR that's stupid, it's whoever runs this site. Compliance isn't
hard.

~~~
scotty79
They complied. It wasn't hard.

------
xhruso00
451 Unavailable For Legal Reasons

Sorry, this content is not available in your region.

Seriously???

~~~
mrep
Most of the web is funded by targeted advertising. Are you seriously surprised
that a lot of those websites are blocking EU users since they cannot make a
profit off of them now due to GDPR?

------
koverda
Can someone with a background in econ / real estate weigh in on this a bit?
Curious to hear some opinions on the housing market within the context of
rising rates.

~~~
ChuckMcM
Disclaimer: I'm just an enthusiast.

Generally, in most discussions of the cost of housing, people discuss this
expense in terms of a fraction of your income. In the US, a number of advisory
articles and books consider between 25 and 30% of your gross take home pay as
a "reasonable" amount of your income to pay for housing. So if you make
$120,000 a year, that is about $3,000/month as 1/3 of your gross take home
salary.

According to the FED income growth has been fairly static over the last decade
so that 1/3 number has been fairly static as well. [1]

Given those two observations, you can derive the impact of rising interest
rates on home sales, which is to say that as the rates rise, the monthly
payment will rise, and that will put homes out of the 25 - 30% window for
people. Historically that means a slower sales cycle and downward pressure on
house prices (which keeps the payments at the lower level).

If there is a commensurate rise in real wage growth it won't slow down the
housing market and the banks will make more money. If wages stay stagnant the
housing market will cool off and if it does so for long enough prices will
come down as people who have to move will feel pressure to lower the price in
order to have the sale go through.

[0]
[https://www.google.com/search?q=what+percentage+of+my+salary...](https://www.google.com/search?q=what+percentage+of+my+salary+should+I+spend+on+housing)

[1]
[https://fred.stlouisfed.org/series/LES1252881600Q](https://fred.stlouisfed.org/series/LES1252881600Q)

------
kristianp
As someone not living in the US, having a loan rate fixed for 30 years seems
insane. So if interest rates go up in the US more than Freddie Mac expects,
they are going to lose money on all their loans for 30 years? Seems like an
unsustainable risk to me.

In Australia we have 4 year fixed home loan rate, and most loans are variable
rate.

~~~
carlivar
Are you aware of the amortization schedule? Interest portion of the payoff is
front loaded. It is a very good deal to write a mortgage no matter what the
rate is, assuming default risk is low.

~~~
kristianp
Is that visible to the customer, or only in the bank's accounting?

~~~
carlivar
Extremely visible. You can create one yourself via many free web tools. Just
Google it.

~~~
eco
They included a full amortization schedule in my mortgage signing documents. I
imagine they always do but don't know for certain.

------
handpickednames
[https://outline.com/XxNrUc](https://outline.com/XxNrUc)

------
mephitix
I'm not an expert at all in this - but it seems like now is a great time to be
a real estate investor?

Given that interest rates will rise, there will be more demand in the rental
market. I don't think REITs will be a good option because of the potential for
higher interest rates but investing in a property, locking in that interest
rate, and generating positive cash flow from rent would be a sound decision?

~~~
ramen-san
5 years ago was a great time to invest in real estate. Today is probably okay,
though prices have risen dramatically across the board (even the cities that
got crushed in the recession have risen past pre recession levels), and rates
are rising. Returns are getting compressed. Still good deals out there, but
the risk/reward profile is shifting in the wrong direction.

For more on real estate investing, I write a lot on the topic here:
[https://ramenretirement.com/](https://ramenretirement.com/)

~~~
mephitix
I guess I should rephrase - now is a good time compared to the foreseeable
future? As in, next couple of years it will be a worse time.

I actually bought a house 5 years ago, and I really feel I totally lucked out.
Back then though, the fear of rising interest rates scared me into buying.
Like you, I don't expect those type of returns with any investment I make
now... but I was thinking about diversifying my finances, and moving money
away from stocks into property real estate.

I know that I'll have to be much more diligent about finding the right
market/deal. I'm using Bigger Pockets at the moment which is quite an amazing
resource. Thanks for pointing me to your site too.

~~~
ramen-san
Yes - if rates continue rising, along with prices, then returns will get
compressed. Check out my analysis of that dynamic here:

[https://ramenretirement.com/2018/05/16/interest-rate-
impact/](https://ramenretirement.com/2018/05/16/interest-rate-impact/)

Doesn't mean you shouldn't invest - just figure out what sort of returns
you're willing to accept (along with the corresponding risk / cushion you
need), and hold that line when you run your diligence. FWIW, I think you can
still find single family investments in the midwest that will generate 8%+
cash on cash returns (after fully accounting for all direct, and reserved
expenses). That's still a pretty good return, but getting harder to find.

It's hard to say when the market will soften or correct, so a dollar-cost-
averaging approach to buying RE is probably a good idea (i.e. buy a rental
property every quarter, or every half year.).

Given that pretty much everything is going right in the economy right now, my
investment stance is more conservative. It's not a bad time to buy, but it's
definitely not a fire sale. Bigger Pockets is a great resource. Drop me a line
if you ever want to chat in more detail. I've gone pretty deep in the whole
space, and have a background in investing and finance.

------
conwaytwitty
What drives the interest rates in the us?

In europe my loan is tied to the euribor 3month rate, which has been negative
for ages and hasn't shown any signs of rising.

I remember having an argument on some webforum with some non european guy that
could not believe my current interest rate is close to zero (mostly just fees
collected by the bank).

~~~
freddie_mercury
Most of the other answers you got were wrong.

Mortgage rates are, mostly, driven by the market. The Federal Reserve
influences the Federal Funds Rate (they don't "set it"; they set a target and
then manipulate the market by buying & selling to try to reach that target).
The FFR is just for overnight lending between massive institutions.

If your intuition says "hey, the difference between overnight lending between
banks and 30-year lending to people is massive!" Well...that's right.

In 2015 the Fed raised rates by 0.25% but mortgage rates went down by 0.50%.
The complete opposite of what most of your replies claim should happen.

This is not exactly a mysterious surprise. The Federal Reserve themselves have
mountains of research, policy notes, and blog posts showing that there is an
often large disconnect between the very short-term rates that the Federal
Reserve can manipulate and longer term rates.

Here's on recent one (from 2017) titled, appropriately enough, "The Fed Funds
Rate's Impact on Other Interest Rates"[1].

(Most US mortgages are fixed interest for the life of the mortgage. Very few
other countries have that luxury. If you get a variable rate in the US, then
it would be like yours -- tied to something else but with a markup.)

[1]: [https://www.stlouisfed.org/on-the-
economy/2017/october/incre...](https://www.stlouisfed.org/on-the-
economy/2017/october/increases-fed-funds-rate-impact-other-interest-rates)

~~~
zzleeper
Most mortgages in the US are sold to Fannie and Freddy (government-sponsored
enterprises) [1]. These GSEs in fact _commit_ themselves to buy mortgages at a
predetermined rate [2], and I suspect this rate is the main driver for the
rates banks charge, at least for "qualifying mortages" (i.e. not jumbo loans
and so on). In turn, I suspect the rates the GSEs offer depends on the rates
at which the GSEs can finance themselves.

Now, who lends to these agencies (i.e. who purchases "agency MBS")? I couldn't
find recent numbers, but this [3] FRBNY article from 2015 states that the Fed
owns most of it, followed by banks (which buy agency mbs partly because it
counts as a safe asset (a "high quality liquid asset"), and allows them to
satisfy their liquidity coverage ratio requirements.

This leads me to your first point:

> Mortgage rates are, mostly, driven by the market.

Pre-2008, I would say probably yes, but nowadays I'm not entirely sure, as the
govt. is the biggest buyer and plays a large role in the second-biggest buyer.

[1]
[http://www.freddiemac.com/singlefamily/factsheets/sell/frm.h...](http://www.freddiemac.com/singlefamily/factsheets/sell/frm.htm)

[2] [https://www.bankrate.com/rates/interest-rates/fannie-
mae-30-...](https://www.bankrate.com/rates/interest-rates/fannie-mae-30-year-
mtg-com-del-60-days.aspx)

[3]
[https://www.newyorkfed.org/medialibrary/media/banking/intern...](https://www.newyorkfed.org/medialibrary/media/banking/international/09.30.2015-mbs-10.30am.pdf)

------
sk5t
TLDR: rates are still very low, but have increased a skosh with some
consistency over the past several months, the meaningfulness of which
statistic is here unsupported.

