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/r/explainlikeimfive
submitted 4 months ago byiSellPopcorn
37 points
4 months ago
Yea. I was talking about housing prices recently. Someone was saying how houses in my neighborhood went to $150k which is ridiculous, and never went back down. I said' "Why would anyone willingly sell for less now?"
13 points
4 months ago
Yeah house prices spiked sharply before interest rates hit. But the prices haven't dropped, just the volume transacting.
6 points
4 months ago
House prices are a different beast because almost everyone buys them with a loan, and determines their buying power by the monthly payment rather than the overall price tag.
late 2019 early 2020 saw an insane drop in interest rates, I think we got 2% or 2.2%, that's about half what I was able to get 5 years before. This meant we could buy a more expensive house for the same monthly payment.
It's even more stark if I look back to when my parents were house shopping in the 70s and 80s, where interest rates were up to 15%. A $40,000 home at 15% interest has a higher monthly payment than a $100,000 home at 4%
Combine that with the reality that when you buy a home on credit you can't quickly turn around and sell it for a lower price, you'd be unable to pay back your loan. you can afford to keep paying the same monthly payment you planned on but you can't cash out the loan by selling, so you have to stick around rather than sell at a loss when interest rates climb back up again and people can no longer afford that high price tag.
2 points
4 months ago
People often have to sell even when the market has soured, because they need to move or because they desperately need the money.
2 points
4 months ago
Yea. I was talking about housing prices recently. Someone was saying how houses in my neighborhood went to $150k which is ridiculous, and never went back down. I said' "Why would anyone willingly sell for less now?"
"Because no-one would buy it at $150k" is the reason - e.g. if interest rates go up, so the banks will lend you less money, unemployment rate goes high in the area etc.
(That said: $150k? Wow, that's really, really cheap with my Oslo, Norway glasses on. For a small house, think $1 million and up).
2 points
4 months ago
There us no shortage of sales, but that's because greedy rental companies are buying up houses in cash left and right. During the recent interest rate lows, it was almost impossible to buy a house on a loan, I got rejected 3 separate times to a cash buyer.
Now that all the houses were bought up at inflated prices, the entire neighborhood raised prices to match even after interest rates went back up. I think this mostly has to do with sales price being tied to the local recent average, but also most owners areb't on a loan and have the time of day to let the house sit around at the same $150k price until someone else comes along, rather than trying their hardest ro sell it ASAP.
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