Mortgage interest rates have nearly tripled in the span of just a couple of years amid inflation fears and strong economic growth.

  • sylver_dragon@lemmy.world
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    1 year ago

    That’s also true. Housing prices got really stupid during the run up to 2008 and they’ve never fallen back to Earth. And, after a short dip, they went ludicrous. But, that isn’t a reason to try and keep interest rates down. If anything, low interest rates have been part of the reason for the run up in home prices. Money has been cheap; so, investors have been able to borrow cheaply and use the rising home prices as a short to mid term investment. For example, if I can borrow $350k at 3% APR, buy a a house and sell it again in six months with the price having gone up 5-10%, that’s basically a license to print money.

    Even better, let’s say I borrow $500k at 5% and assuming the bank lets me do that with no down payment (crazy these days, but let’s pretend Countrywide is still in business). I’m now paying $2,684 in Principal and Interest (calculated here: https://www.bankrate.com/mortgages/mortgage-calculator/). I then turn around and rent out that same house for $4,000/month. Assuming some costs for maintenance and management, I’m likely still ahead a $1,000/month or so. And that’s basically free money for me. Done on an institutional scale, it’s easy money and easier the lower interest rates are.

    Any fix to home prices isn’t going to come from interest rates. We’re going to need changes to the legal framework around home ownership and property investment. And that is going to be a rough road.