The forces that drove prices are over. Low interest rates, and low productivity due to COVID-19. As interest rates rise people will no be able to afford their mortgages. Prices will fall in response.
Less than 10% of mortgages are variable rate. And why would anybody sell their house with a 2% mortgage? They’d need to be paid a significant premium to justify this.
Anyone who is capable of getting a second mortgage will consider holding it and renting it out if they can. The yield is very likely to be higher than the payments these days.
But now that the second mortgage is so much more expensive, fewer people will be able to do it right? More specifically, previously you could borrow against the increasing value of your home, at a low interest rate, to fund the next purchase. This is what everyone on the investment side was doing. With neither of those factors true any longer, it seems this scenario will be less common.
At a higher level, I think this is what the transfer of wealth looked like for the past decade.
> As interest rates rise people will no be able to afford their mortgages
I really wonder how many people in the last 10 years actually felt like buying a variable rate mortgage was a good idea? People on fixed rate mortgages are staying put, and watching inflation deflate the value of their debt.
People might be scared to let go of a house they already bought.
- They might consider going on paying in the hope that rates drop
- They might not be able to buy another house
- They might find rents will shoot up with mortgage, so somehow manage to pay mortgage.
Also, many houses are bought by investors and companies.
They might be able to show higher mortgage as additional expense when filing Taxes. ( Not sure, but that's how I think they do it - someone can explain better )
If a large number of people are unable to afford their mortgage.
Then we have a real crisis coming.
Not meaningfully. Prices are up 60% in 2 years. No chance there is that level of correction when 99% of mortgages have rates cheaper than the current market rate.
Most people finance homes. Prices are overwhelmingly a function of affordability based on lending criteria. See financial engineering, thus see the Fed and real estate financing/banking legislation.
Unless, the very thin chance
1. Owners don't need or want to sell
2. No inventory is added through building
3. People somehow pay cash and support the prices
...or some combinations.
