Why 7% Mortgage Rates are Worse now than 20 Years Ago

[bjl584]

Here's why 7% mortgage rates are so much worse for buyers now than 20 years ago (yahoo.com)

[disneysteve]

Interesting points. It's not all about the interest rate. It's true that we paid 9% when we bought our house in 1994 but there were a ton of houses on the market. We spent many days touring many properties with our agent before finding our house. Today, you're lucky if a house isn't sold the day it's listed, or even before it's listed, and often for thousands over asking price.

[Fishindude77]

Inflation in the cost of housing is much more significant than the interest rates.

[ua_guy]

We're seeing the "lock-in" effect the article mentions in the local market. It's constraining inventory....people don't want to sell homes on which they have historically low interest rates. So the homes that do go up for sale are maintaining the high prices we saw when rates were a lot lower.

This is "how much worse" it's gotten, an anecdotal story:

Interest rates today are roughly the rate at which my folks financed their new home purchase in 1993, somewhere north of 7% but below 8%, I don't remember the exact rate, I was pretty young. It was a high end home, costing about $315k in a brand new development of similar homes.

The home next to theirs was completed at roughly the same time and had a similar floor plan, cost about the same, same finishes, etc. That house hit the market two weeks ago and is listed for $1.8 Million.

How much goes to interest on a 30 year at 7.5% on a principal of $252k, (assuming 20% was put down), versus 7.5% on a principal of $1,440,000....holy smokes.

[LivingAlmostLarge]

We're seeing the "lock-in" effect the article mentions in the local market. It's constraining inventory....people don't want to sell homes on which they have historically low interest rates. So the homes that do go up for sale are maintaining the high prices we saw when rates were a lot lower.

This is "how much worse" it's gotten, an anecdotal story:

Interest rates today are roughly the rate at which my folks financed their new home purchase in 1993, somewhere north of 7% but below 8%, I don't remember the exact rate, I was pretty young. It was a high end home, costing about $315k in a brand new development of similar homes.

The home next to theirs was completed at roughly the same time and had a similar floor plan, cost about the same, same finishes, etc. That house hit the market two weeks ago and is listed for $1.8 Million.

How much goes to interest on a 30 year at 7.5% on a principal of $252k, (assuming 20% was put down), versus 7.5% on a principal of $1,440,000....holy smokes.

The home appreciation alone outstripped market return on $60k down. Plus add in having to pay something to live there, that's why in HCOLA on the coasts the home appreciation pays basically for everything and why it rarely makes sense even in HCOLA to rent. You are forever priced out.

That's not to say in SF if you could get a rent controlled apartment that you won't come out ahead, but the chances are if you had bought in say 1987 what it would be worth now. Even my college roommate her sister & husband had a rent controlled apartment in Ghiradelli square area from 1998. They lived there until 2012 when they moved out of the area. They had a 3 bedroom they had other roommates living with them but they could never justify buying because the rent control was crazy. But after they left it was no longer rent controlled and it the appreciation was crazy too. My roommates sister only $1500/month for "rent" on that apartment in SF.

Same thing happened to a friend's grandma she was renting in Santa Monica from 1992. Same thing rent controlled until she died in 2010. The landlord was salivating. It rented out for $8k when she left her 2 bedroom which she had "overpaid" rent for $1500 and ended at $2200? or something like that. Yeah the appreciation was crazy but look at the rental rates during the same period.