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Answers (11)
- Steve Mancilla, "Cal Steve"
- Contributions:58
JOBS! JOBS! JOBS!
Tomorrow's labor dept report(s) for December employment will be a hige indicator if the economy has any "mojo" to sustain a very timid recovery.
Let's focus on solutions. If rates increase any further, affordability will be pinched since wages are not increasing accordingly... Thus, ensure that a pro is placing together a seller buydown strategy for the borrower in the event that they are caught in a rate rise environment (which we are not in as of yet).
Hope this helps. Feel free to contact me.
Tomorrow's labor dept report(s) for December employment will be a hige indicator if the economy has any "mojo" to sustain a very timid recovery.
Let's focus on solutions. If rates increase any further, affordability will be pinched since wages are not increasing accordingly... Thus, ensure that a pro is placing together a seller buydown strategy for the borrower in the event that they are caught in a rate rise environment (which we are not in as of yet).
Hope this helps. Feel free to contact me.
- Michael Lewis, "Michael R Lewis"
- Contributions:1
Yes. As the cost of borrowing increases the price of homes must decrease to balance affordability. However, as interest rates rise the banks stand to make more money by lending rather than holding onto it or putting it into other non-real estate investment streams. I think it will take an increase in rates to get banks to loosen the purse strings and the reaction should be more buyers. More buyers will result in price increases. The problem with the housing market is that there are just too few qualified buyers at a time when interest rates are hovering at historic lows.
- John Wurster, "John Wurster"
- Contributions:34
There is certainly an inverse relationship between mortgage rates and home prices, but it's much more complex than that. One must consider what other economic forces are predominate. People won't start buying homes until they have jobs and more financial comfort (which could also come from, in part, the growth of their investment portfolios). When the country and economy as a whole feels stable, and even better, "optimistic" again, they will start buying again. Hopefully, the balance of rates and pricing won't be so out of whack that they are precluded from buying. If rates go up sharply now, prior to a stabilization and optimism of the overall population, then values could really suffer in the near term. Keep in mind that if people still have equity and are in a position of "needing" to sell soon, they might consider now being the time. Pricing will "sawtooth" along the bottom for some time, so trying to wait out what could be a few years of no appreciation, could be futile. This is a very loaded question; one must consider their specific situation, urgency, and current v. anticipated financial condition.
- Reuben Pacheco, "Reuben Pacheco"
- Contributions:48
Your question is a question that confuses most people. With interest rates being subsidized or intentionally depressed to stimulate a weakened housing market you get a stabilization in market activity because the affordability index is there for people who wouldn't ordinarily qualify at the higher rates we should all be seeing. If the Feds were to raise rates in a weakened market with the shadow inventory the lenders have it would cripple the purchase money market and crush the refi market forcing property values down further. It would be cataclysmic to say the least. Rates eventually will go up hopefully, after the market has truly corrected itself and there's no sign of shadow inventory. There is also a large group of people who could be thrown into foreclosure that are barely hanging on because of the low rates. I'm speaking of the millions of people who are still on the option arm loans that haven't been able to regi or get loan mods. A whole new topic of concern.
- Bradley Slavens, "Slavens Realty"
- Contributions:14
If everything else stays the same, higher rates equal lower prices. When people go buy a home they say I" have $1000 per month, what will that get me". If it gets them less prices will likely drop.
- Pasadenan
- Contributions:21466
The lower priced homes in San Diego may look "flat" presently, but the prices are still "bubble inflated", and the bubble will still decline, especially if interest rates rise and unemployment doesn't decrease.
San Diego Lower 1/3 value tier median trend
It is still all just government games to delay the restoration of values back down to normal trend lines.
Consider this; the $8k bribe increased prices by about $12k in the lower tier across the nation, and yet the trend shows only about $2k increase during that time, and then the state replaced the $8k bribe with a $10k bribe? And the trend-line still stays about flat? This can only mean that the values have dropped an additional $12k, but that the low interest rate is presently propping the values up. It can't stay that way!
(Artificial values are still "artificial" no matter how you measure it).
San Diego Lower 1/3 value tier median trend
It is still all just government games to delay the restoration of values back down to normal trend lines.
Consider this; the $8k bribe increased prices by about $12k in the lower tier across the nation, and yet the trend shows only about $2k increase during that time, and then the state replaced the $8k bribe with a $10k bribe? And the trend-line still stays about flat? This can only mean that the values have dropped an additional $12k, but that the low interest rate is presently propping the values up. It can't stay that way!
(Artificial values are still "artificial" no matter how you measure it).
- Cory La Scala, "San Diego CA Realtor"
- Contributions:419
The lower priced homes here in San Diego have a lot of competition, at least in the under $300K market, but it may affect higher priced homes. People have more money tied up in credit cards these days too, so that
could affect prices a little, it just depends on how high rates will rise. A half point may not make a difference, a full point can and will. Plus, it'll make many people want to wait for lower rates, especially in the higher priced market, so that could be a factor.
Add to that job uncertainty ... But, all that being said, people will always need to buy and sell for one reason or another.
- wordsmth
- Contributions:361
There are a whole bunch of cross-cutting currents involved in answering your question.
Just from a general economics standpoint, rising rates would make homebuying more expensive. So, for example, if someone can afford a $1,000 a month payment (that's all they can afford) and rates go up, then--from an economist's point of view--one of two things can happen. Either the buyer will spend that $1,000 on a less expensive property OR the buyer will offer less so that he can buy the property for a lower price.
In the past, as rates have risen, what's usually happened is that prices have remained flat and buyers have downsized their expectations. So they still may have spend that $1,000 a month, but on a less expensive home.
But this market's unusual, with substantial price reductions in many areas. So it wouldn't surprise me if prices declined somewhat as interest rates rose.
You're right that owners who don't need to sell are in a better position to weather today's market. Problem is: In some cases there's a lot of "deferred selling." Someone may have been OK waiting 3 months, 6 months, a year to sell, but eventually will have to.
I just answered a question on another site about a person who got married a year ago, consolidated the two households, and ended up with a vacant home. The house is upside down, so the owner can't sell it and bring enough money to closing. And it's costing him $1,500 a month, which he can't continue much longer. He's been able to delay the problem, but not eliminate it. (His solution is to rent the place out, but that's another story.) And there are lots people like that. They've consolidated households. Or the husband has been transferred hundreds of miles away, and commutes to see his wife. Or someone wants to retire to Florida or Texas and has delayed that a year or so, but ultimately is going to move.
Bottom line: There are people who've weathered the storm to this point, but won't be able to do it too much longer.
But back to your basic question about interest rates and prices. My guess is that--to a much greater extent than in the past--higher interest rates will equate to lower prices. I don't see the same support for prices that has existed in the past. And that'll spell trouble for would-be sellers with little equity in their properties. Maybe they could sell now and walk away from closing with a few thousand dollars in their pockets. As interest rates rise--if my assumption is correct and prices fall--you'll have fewer people in a position to sell conventionally. More will be facing the prospect of short sales.
Hope that helps.
Just from a general economics standpoint, rising rates would make homebuying more expensive. So, for example, if someone can afford a $1,000 a month payment (that's all they can afford) and rates go up, then--from an economist's point of view--one of two things can happen. Either the buyer will spend that $1,000 on a less expensive property OR the buyer will offer less so that he can buy the property for a lower price.
In the past, as rates have risen, what's usually happened is that prices have remained flat and buyers have downsized their expectations. So they still may have spend that $1,000 a month, but on a less expensive home.
But this market's unusual, with substantial price reductions in many areas. So it wouldn't surprise me if prices declined somewhat as interest rates rose.
You're right that owners who don't need to sell are in a better position to weather today's market. Problem is: In some cases there's a lot of "deferred selling." Someone may have been OK waiting 3 months, 6 months, a year to sell, but eventually will have to.
I just answered a question on another site about a person who got married a year ago, consolidated the two households, and ended up with a vacant home. The house is upside down, so the owner can't sell it and bring enough money to closing. And it's costing him $1,500 a month, which he can't continue much longer. He's been able to delay the problem, but not eliminate it. (His solution is to rent the place out, but that's another story.) And there are lots people like that. They've consolidated households. Or the husband has been transferred hundreds of miles away, and commutes to see his wife. Or someone wants to retire to Florida or Texas and has delayed that a year or so, but ultimately is going to move.
Bottom line: There are people who've weathered the storm to this point, but won't be able to do it too much longer.
But back to your basic question about interest rates and prices. My guess is that--to a much greater extent than in the past--higher interest rates will equate to lower prices. I don't see the same support for prices that has existed in the past. And that'll spell trouble for would-be sellers with little equity in their properties. Maybe they could sell now and walk away from closing with a few thousand dollars in their pockets. As interest rates rise--if my assumption is correct and prices fall--you'll have fewer people in a position to sell conventionally. More will be facing the prospect of short sales.
Hope that helps.
- Dan, "the_country_hick"
- Contributions:4699
Alone, perhaps if you post a question here (click on the blue) someone can help. I have no idea what the proper thing to say here is. I do doubt many people would see what you said hidden in this particular question that you just replied in.
Just look at what you ask as there is a size limit and things get shortened up.
Just look at what you ask as there is a size limit and things get shortened up.
- aloneinalabama
- Contributions:1
IM NOT SURE IF IM IN THED RIGHT PLACE BUT WHAT IM SAYING IS IM FINDING MYSELF IN BAD HEALTH AND NEEDING TO MOVE I HAVE 4 AND1\2 AC IN SECTION ALABAMA THE HOUSE LOOKS LIKE AN ILD STORE AND NEEDS WORK MOST OF THE STUFF TO FINNINSH IT IS THERE AND IM MLIVING IN IT NOW..BUT NEED TO BE CLOSER TO MY KIDS AND FRIENDS FOR HELP I'LL IM NEED TO OAY THE HOUSE OFF AND THEN PAY THE NEW HOUSE OFF TO BUT DONT WONT TO GET RIPPED OFF...ITS JUST ONE OF THEM HOUSESE YOU HAVE TO SEE AND IF THERE WAS A MAN WHO KNEW WHAT HE WAS DOING AND COULD DO IT HE WOULD JUST LOVE IT I WOULD LEAVE EVERY THING TO FINISH IT AND WOULD EVEN TRAYED THE STUFF FOR LIKE THERE ARE STUFF THAT IS IN THE NEW HOUSE I DON'T WONT LIKE WHITE FREG AND STOVE AND I NEED HELP AND THE HOUSE IS MINE THE LAND IS MINE AND ITS IN THE COUNTY AND I JUST HAVE NO WAY TO FINANCE AND NEED THE HELP SO IF ANY ONE COULD HELP ME GET WHAT I WONT I WOULD DO THE SAME...THE PEOPLE NEXT DOOR HAS OFFERED TO BUY IT FROM ME BUT THEY HAVE MONEY AND THEY JUST WONT TO MAKE MORE MONEY AND MYSELF WOULD LIKE TO JUST HAVE SOMEONE LOVE THE HOME THE WAY I DO...I DO HAVE SOME PICTURES IF YOU WOULD LIKE TO SEE THEM THE TAXES ARE CHEEP AND IF YOU HAVE SS THEY R FREE...SO IF THERE'S SOME NICE PERSON WHOM WOULD LIKE TO HELP AN SICK OLD PERSON JUST TRYING TO GET BY YELL
- Dan, "the_country_hick"
- Contributions:4699
Look at Japan. Chart challenge: San Francisco mimics Japanese land value decline (sort of)
For a more up to date (but harder to find about 21 page downs)
look about 1/2 way down the page for "Japanese House prices" in a chart
They had over 10 years of falling prices. The problem is people die. People get old and/or sick and need to move for medical or personal reasons. People lose their job and need to move for a new job. And occasionally, people believe a realtor when they are told they can sell for less now but get a better house at a similar discount.
And basically, after enough time passes people sell for something because they think given more time they would lose even more money.
There are people who bought a house when they were young and now are retired. They only bought one house. They never needed or wanted to buy another. Somehow the housing market with its ups and downs over the past 50 years got along fine without those people or their properties in every boom and bust cycle. This time should be no different. When the average person moves every 7 years those who wait to sell will not be a large enough segment of the population to make much if any difference.
For a more up to date (but harder to find about 21 page downs)
look about 1/2 way down the page for "Japanese House prices" in a chart
They had over 10 years of falling prices. The problem is people die. People get old and/or sick and need to move for medical or personal reasons. People lose their job and need to move for a new job. And occasionally, people believe a realtor when they are told they can sell for less now but get a better house at a similar discount.
And basically, after enough time passes people sell for something because they think given more time they would lose even more money.
There are people who bought a house when they were young and now are retired. They only bought one house. They never needed or wanted to buy another. Somehow the housing market with its ups and downs over the past 50 years got along fine without those people or their properties in every boom and bust cycle. This time should be no different. When the average person moves every 7 years those who wait to sell will not be a large enough segment of the population to make much if any difference.
Will higher rates equate to lower prices?
However...
Those owners who are able to weather the current RE downturn are most likely to be the ones who are best able to wait out the market. In other words, they are the ones who don't need to sell. While I'm sure we haven't seen the end yet, ssthose who can't wait out the market are the ones who are now in foreclosure, short sale, or strategic default.
How does this play in the "higher rates equates to lower prices" theory?
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