it would increase my mortgage payments with about $400 a month. I don’t think that I would be comfortable with that.
You wouldn’t be. But you’d go into FOMO mode and tell yourself a story about how “well, at least it’s not the 4.5% people will probably be getting 6 months from now.” And you’d do it anyways, maybe even being more aggressive to win that bidding war, and avoid the 4.5%.
Source: was doing mortgages in 2018, after rates had jumped up 1% in less than a year. 2018 was, at the time, my best year ever.
EDIT: I actually don’t have mind reading abilities, so I don’t know that this specific person I am responding to would think that. It doesn’t matter if they don’t, someone else would, and that’s who would win the bidding war. Only the highest and best offer gets to vote on the value of the home in question, no one else gets a vote.
https://www.bis.org/publ/work665.pdf – they find that you have to wait 3 years for a 1% rate bump to soften values by 5%. As long as there are still FOMO people out there, that’s who wins all the bidding wars. Apparently it takes 3 years, historically, to run out of FOMO people.
https://www.researchgate.net/publication/314130405_Housing_Prices_at_the_Time_of_QEs_in_California_Effect_of_Mortgage_Rates – rising rates didn’t soften the run-up to the great crash, and low rates after didn’t boost home values. “Our analysis confirms some of the existing literature on the relationship between interest rates and housing prices; that in the boom-bust housing market cycles, interest rates do not play a major role one would expect in determining the demand for housing.”
3rd source: please identify yourself if you have ever said to your spouse or significant other: “hey mortgage rates went up, so let’s not have sex tonight” or “hey mortgage rates are low, let’s have extra sexy time this week” (mortgage professionals, the question isn’t directed at you). Inelastic demand…. if gas prices go up 20% tomorrow, you aren’t driving 20% less, nor are you moving 20% closer to work. But, inertia can be reversed. If gas prices go up 20% and STAY up at that level, EVENTUALLY you may get a more efficient car or move closer to work.
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