Welcome • User Guide
ToS • Privacy • Canary
Donate • Bugs • License

©2026 Poal.co

516

Do all those ARM's blow up the economy?

Do house prices fall, lowering taxes, which fucks City/County/State budgets?

ELI5, what would a 1-2% raise in the interest rates do to US housing?

Do all those ARM's blow up the economy? Do house prices fall, lowering taxes, which fucks City/County/State budgets? ELI5, what would a 1-2% raise in the interest rates do to US housing?

(post is archived)

[–] • 8 pts

Prices fall, especially in markets with high home prices. People can only afford a certain payment amount per month. Say your family can afford $2,000 a month in California. Today that's enough to make the payments on a $475,000 loan. If interests rates were to go up to 10% or above like they did in the early 1980's, $2,000 per month could only make the payments on a $227,500 loan.

In other words, you've cut the purchasing power of 90%+ of the homebuying population in half. There won't be anybody to pay your million-dollar asking price. You'll either have to cut your price in half or decline to sell your house.

It will also pop the US debt economy. So many people live it up by taking out second mortgages or refinancing their homes to leverage equity, but when they have no equity they can't do it. Even if they kept their equity they could only afford the payments on half of what they could afford before. So, even in an optimistic scenario, consumer spending is drastically reduced.

The GOOD thing about high interest rates is that it encourages people to save. People would earn $80 a month in interest for every $10,000 in savings.

[–] • 1 pt

The FED will never raise interest rates to 1% let alone 10%

[–] • 2 pts

Yeah, at this point, the Fed is all talk. The markets are tanking right now at even the suggestion of rate hikes and tapering.

[–] [deleted] • 1 pt

Yeah, that's the thing. We can have huge inflation but interest rates at 1%. It's highway robbery.

[–] • 1 pt

It's about the imminent impending bankruptcy I think because of sent servicing. Increase in interest rate will finally bankrupt the usa

[–] • 0 pt

They're fucked, though. If they don't raise interest rates inflation will consume their profits. All the outstanding debt owed them by mortgage holders, student loan borrowers, etc. is priced at rates far lower than inflation. That means you actually make money by borrowing because you're locking in the value of that money to the time when you borrowed it. The lender is losing buckets of money.

On the other hand, increasing interest rates will tank the real estate bubble and put us right back in 2008. Good luck Mr. Fed.

[–] • 1 pt

Right. So, if you're looking to buy, you wait for prices to fall & the suckers to walk on their upside down McMansions?

[–] • 1 pt (edited )

Unless you have cash you're not in any better position. Sure, the purchase price is lower but the savings all go to the bank in the form of interest. Your payments are the same for either price. You will also have to wait longer to enjoy some equity because interest rates will be weighing down housing prices. At 10% interest real estate prices have to increase at more than 10% just for you to break even when you sell your house.

[–] • 2 pts

Yes, in this scenario you can assume cash flush waiting to pounce.

[–] • 0 pt

Of course you're in a better position. The fed will eventually have to lower rates then you refi with a smaller payment, then wait for prices to rise again because interest is lower.

[–] [deleted] • 0 pt

2010 was a good year for people looking to buy foreclosures.

[–] • 0 pt

Didn't have Trillions in free Fed Bux to Blackrock and other institutional in 2010, though.

[–] • 0 pt

So, even in an optimistic scenario, consumer spending is drastically reduced.

Which is exactly what is needed. Less consumption, more money in the bank available to be loaned to businesses to generate real long-term wealth from it.

People would earn $80 a month in interest for every $10,000 in savings.

Fuuuuck that would be nice.

[–] • 1 pt (edited )

At the same time the value of your savings would be decreasing even more by inflation. Only when interest rates > inflation do you win by saving. The Fed will NEVER allow that to happen for long because they don't want you savings. They want to drive you to invest in commodities so they can collect all those investment fees on your money, not to mention inflate stock bubbles so they can cash in. If private people could beat inflation and earn a little just by saving money a lot of people wouldn't be in stocks and bonds.

[–] • 0 pt

Banks don't loan money like that. When they loan they create that "money" on their books, doesn't matter what they actually have it reserve . Reserve requirements effectively don't even matter as they can loan from fed at end of day to balance books when needed

[–] • 1 pt

All the retards who went into bidding wars based on what their payments were going to be with a low interest rate are fucked. They went to the absolute last penny they could afford at say 2% interest. If that rate is at 3% when their mortgage is up for renewal, their new payments will be about 50% higher (assuming they keep the same amortization).

[–] • 1 pt

Renewal? You mean ARMs?

[–] • 0 pt

They locked into a 5 year (typically) term at the start of the mortgage. When that term is up, they renew for another term that locks in the interest rate and payments for a period of time usually between 1 and 10 years.

[–] • 1 pt

What proportion of the mortgages are realistically done this way vs. a fixed %?

[–] • 0 pt

Houses get cheaper.

[–] • 0 pt

Do they? A new variable is all that delicious fed bux given to Blackrock. Wouldn't the institutional investors just hoover up inventory, keeping prices elevated?

[–] • 1 pt

Sure they buy them, but for what? Noone is going to buy from them, or even afford the rent to them unless Blackrock subsidizes the rent and gives renters free money basically, which they won't do.

[–] • 1 pt

When you have free fed bux, do you really care about renting? Not sure I'm convinced.

[+] [deleted] • 0 pt
[–] • 0 pt (edited )

Things become more expensive, refinance is definitely on the horizon when rates will drop. They’ll drop because nobody is selling because rates are so high. It’s a cycle (unless the Chinese are involved, they fuck up everything they touch. Wait it out and you’ll be fine.)

[–] • 1 pt

So, if you're looking to buy, wait until rates raise & prices drop?

[–] • 0 pt

Cash is bad, look at Venezuela, Zimbabwe did it worse. Gold and any other valuable metals/minerals could be erased over one night with some great mine/asteroid discovery.

[–] • 0 pt

Highly unlikely that such a large deposit would be discovered that would affect the precious metals markets, which have a huge market cap.

[–] • 0 pt

If there aren't limits to tax raises then falling valuations can be made up with a tax increase. There was a county? that assessed a parcel at $1 million instead of $1k. They budgeted based on the error. When it was discovered the county raised taxes rather than adjust the budget.

For California properties the cpi adjustment only went negative twice in 60+ years. So a severe recession will reduce tax collections. But if the market recovers the loss will only be temporary.

[–] • 1 pt

For California properties the cpi adjustment only went negative twice in 60+ years.

What do you mean?

[–] • 0 pt

Because of limitations imposed by Prop 13, the most your evaluation can go up by is 2%, tied to the consumer price index. If the index goes up less than 2%, than that is the change.

But I the negative part was an error, sorry. Only two times in 60 years did the expected tax receipts go negative. I think it went negative in 2009, like -1.6% for Los Angeles. It doesn't sound like much, but that something like -$30 million for one year and growth is always expected.

[–] • 0 pt

If interest rates rise quickly enough (which might be as little as 1% in a year), then the real estate market will stall put in most places. First time home buyers will be able to afford less, so sellers will have to drop prices. Which they won't want to do at first, and most will just choose to stay rather than take a loss or sell for less than what they think their house is worth.

It's a sellers market everywhere, and I've never seen it so lopsided. It would be good for everyone if it shifted back the other direction.