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birb_cromble  4d ago (text post)   967 thread views

Qeekly Finance Thread - 2026-11-07

A weekly thread to discuss financial matters - from personal all the way up to global.

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According to ChatGPT, about 27% of home purchases are all cash.

I'm not an economist, but it seems to me that mortgage rates will necessarily be higher than the rate of inflation.

Yes, over the long term I would expect that's true. But not in the short term. In 2022, going by memory here, you could still get a mortgage for like 3% while inflation was hitting 9%.

Right now we have the opposite situation where the real yield of bonds is the highest it has been since the 1990s.

Yes, over the long term, I would expect that's true. But not in the short term. In 2022, going by memory here, you could still get a mortgage for like 3% while inflation was hitting 9%.

This is roughly correct.

I'm sure the professional econometricists have more sophisticated models that include more factors and lags, but I think the rough picture is "supposed to" be like this: Higher core inflation affects investor and consumer expectations for long-term inflation. The Fed, trying to implement its dual mandate, tries to contain this by adjusting the federal funds rate.

The funds rate, however, acts most directly on the front end of the yield curve, while the long end responds to expectations of future short-term rates and the term premium. So the effect on the long end can be muted, and it doesn't necessarily move in lockstep with the funds rate. Eventually, if they pull hard enough and long enough with the curve inverted, the long end will also move.

Investors then trade agency MBS at a spread over Treasuries, based on current expectations for the risk premia required to compensate for interest-rate, prepayment, and liquidity risks (and those spreads aren't necessarily always positive). People's actual mortgages are then quoted at an additional spread that accounts for origination and servicing costs, lender margin, your personal risk, percent down, the local market, etc. (plus whatever policy shenanigans are going on at Fannie and Freddie with guarantee fees).

According to ChatGPT, about 27% of home purchases are all cash.

Is this broken down by type of purchase (e.g. vacation house; multi-unit investment properties; etc.?) My guess is that for your typical modest home in the suburbs of a large city, the percentage of buyers who finance is significantly higher than 73%.

But not in the short term. In 2022, going by memory here, you could still get a mortgage for like 3% while inflation was hitting 9%.

Right, so it seems to me that raising interest rates might effect mortgage interest rates one way in the short term but another way in the long term, right?

My guess is that for your typical modest home in the suburbs of a large city, the percentage of buyers who finance is significantly higher than 73%.

The average home buyer if 58 years old. 💀 If anything, 27% all cash seems low.

High interest rates help the old at the expense of the young.

The average home buyer if 58 years old.

Again, I would like to see this broken down. Anecdotally, I am in my 50s and I just bought a vacation house in a beach resort area. Which brings up the average age but I'm not really competing with the sort of people who need to borrow money to buy a house.

High interest rates help the old at the expense of the young.

If you mean mortgage interest rates and you are strictly looking at buyers, then I agree, although I am not sure as to the size of the effect. With interest rates as set by the central bank, it's not as clear. And of course a lot of sellers are older people. For them, higher mortgage interest rates are arguably bad.

Isnt this basically selling A for cash, buying B using that cash? If youre moving from owned house to owned house, or downsizing, theres no reason to take on debt.

Isnt this basically selling A for cash, buying B using that cash? If youre moving from owned house to owned house, or downsizing, theres no reason to take on debt.

I'm not sure I understand your point here. Are you suggesting that a lot of cash buyers for houses are getting the cash from the sale of their previous property?

I think so? A significant number of transactions are retired couples selling their expensive "growing family sized" house in a large city's suburbs to either move to a house better sized (and easier to take care of) for an aging couple, or moving to a nice place further away from the city to enjoy a quiet retirement. The second house is presumably more than covered in cash by the first one, since it's either smaller or further away from the city. The difference in price funds their retirement activities.

I think so? A significant number of transactions are retired couples selling their expensive "growing family sized" house in a large city's suburbs to either move to a house better sized (and easier to take care of) for an aging couple, or moving to a nice place further away from the city to enjoy a quiet retirement. The second house is presumably more than covered in cash by the first one, since it's either smaller or further away from the city. The difference in price funds their retirement activities.

Yeah, I would guess that's a pretty common scenario. And that's just the sort of segmenting I would like to see with respect to the 27% figure.

Yes.

Yes.

Ok, and how does that play into the affordability crisis, or whatever you want to call it?

For one thing I guess it means that there's a pool of buyers (current homeowners) who are not sensitive to interest rate or other affordability concerns when looking at houses -- so demand does not (necessarily) exceed supply?

No idea. I'm not OP, just an annoying guy with a theory about why 27% of sales being non-financed is reasonable.

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