EVERYBODY WANTS 5% MORTGAGES—UNTIL HOME PRICES EXPLODE AGAIN
Cheap Money Sounds Great Until Everybody Starts Bidding Against Each Other
Written by Devone Richard
5
Everybody Wants Lower Rates
I understand why.
Buyers want lower payments.
Sellers want more buyers.
Realtors want more transactions.
But here’s the question nobody seems to ask:
What happens to home prices when rates drop?
If mortgage rates fall and millions of buyers suddenly gain more purchasing power, they all come back into the market at the same time.
More buyers.
Same houses.
More competition.
And that can mean one thing:
Higher prices.
Cheaper Money Doesn’t Always Mean Cheaper Housing
6
Let’s say a buyer can afford a $4,000 monthly payment.
Rates fall.
Now that buyer can borrow more.
Sounds great.
But every other buyer can borrow more too.
If inventory doesn’t increase, those buyers start bidding against each other.
That’s how a $700,000 house becomes $750,000.
Then $800,000.
Then $850,000.
So yes, the payment may get easier.
But the house itself can get more expensive.
That’s not affordability. That’s moving the problem.
Maybe the House Is Too Expensive
Everybody keeps saying:
“We need lower rates so people can afford homes.”
Maybe.
But maybe we also need to admit:
The damn house costs too much.
I’d rather see buyers purchase reasonably priced homes at higher rates they may eventually refinance than overpay for a house because cheap money made the monthly payment look manageable.
One of the first rules of RichardNomics is simple:
YOU CAN REFINANCE AN INTEREST RATE.
YOU CAN’T REFINANCE WHAT YOU PAID FOR THE HOUSE.
The Real Problem Is Supply
6
Interest rates don’t build houses.
If there aren’t enough homes where people want to live, lowering rates doesn’t fix the problem.
We need more housing.
More starter homes.
More inventory.
More construction.
Because if there are 10 houses and 20 buyers, giving all 20 buyers more borrowing power doesn’t create 10 more houses.
It creates a bidding war.
Final Thought
5
Everybody wants 5% mortgages.
I understand it.
But before we celebrate, ask one question:
What happens when millions of buyers come rushing back at the same time?
If supply hasn’t improved, those buyers compete.
And when buyers compete…
Prices rise.
Maybe dramatically lower rates aren’t the answer right now.
Maybe the market needs more discipline.
Maybe it needs more housing.
And maybe it needs buyers and sellers to stop assuming cheaper money automatically creates cheaper homes.
Because sometimes…
Cheaper money just makes expensive houses even more expensive.
That’s RichardNomics.
Written by Devone Richard
Broker/Owner | OYT Real Estate
California Broker #01857383
Nevada Broker #1002115
📞 626-500-1212 | 702-941-0202
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