Kinda. If I buy a 1M home at 2.5% interest, I have a $4,000 monthly payment. If rates go to 6%:
- Housing prices plummet to $600,000, assuming people are willing to spend the same per month.
- My monthly payments are identical to had I bought at $600k at 6%. If I stay there, I'm not much worse off. It's harder to pay off the home quickly.
- If I move out, and I rent out my home, it covers monthly payments approximately exactly.
The only time the owner is in danger is if:
1) They need to move.
2) They can't rent out the original property.
Rent works out since while the home is a liability, with 6% interest rates, the 2.5% loan is an asset.
As a footnote, what I expect is actually happening here is people are anticipating high inflation. If that happens, this isn't a bubble. Real housing prices might be fixed, at least looking out a few years.
- Housing prices plummet to $600,000, assuming people are willing to spend the same per month.
- My monthly payments are identical to had I bought at $600k at 6%. If I stay there, I'm not much worse off. It's harder to pay off the home quickly.
- If I move out, and I rent out my home, it covers monthly payments approximately exactly.
The only time the owner is in danger is if:
1) They need to move.
2) They can't rent out the original property.
Rent works out since while the home is a liability, with 6% interest rates, the 2.5% loan is an asset.
As a footnote, what I expect is actually happening here is people are anticipating high inflation. If that happens, this isn't a bubble. Real housing prices might be fixed, at least looking out a few years.