this post was submitted on 18 Jun 2023
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I think extended amortizations applies to existing mortgages only. Those don't directly drive the current prices up. New mortgages determine the current prices and as far as I know their amortization periods haven't changed. If that's the case and interest is going up, and prices are going up, then people must be putting more money into downpayments. Say for a sake of argument interest rose by 10x tomorrow. Buyers with mortgages would be able to bid dramatically lower given the same downpayment. And so the market prices will collapse. If at the same time banks extend amortizations to hundreds of years to keep people from defaulting, that won't change that noone can afford to bid what they used to bid yesterday. Existing loan amortizations keep some of the supply from entering the market and that creates some upwards pressure however interest rates directly affect the maximum market prices (if incomes stay relatively stable). There may be one unit for sale in the whole market, if all the thousand bidders can only afford to pay $1 for it, it won't sell for $10, no matter the supply.
Yup. The effect is indirect, but present.