Surging Mortgage Rates Set Off Scramble to Buy Homes

[eyephone]

Sorry daedalus, I don't agree that prices will fall enough to offset rises in interest rates... esp not in areas where financing is not as widely used due to large or all cash down payments.

I've seen this sentiment since 2008 and I have yet to see a proportionate decrease/increase is prices related to interest rates. Rates have been between 4-5% for the last how many years... yet prices keep going up... so how is that math working?

Explain to me what happened last housing crash.

Show me the math where rise/fall in interest rates were *proportionately* related to rise/fall in housing prices. The one rule I've seen in housing prices in Irvine is they usually rise much faster than than they fall.

Waiting to buy a house because thinking that prices will drop when the interest rates go up is folly... just buy what you can afford and stop worrying about the peak/valley game.

As much as it pains me, I'm going to have to agree with IHO here.  Not because Irvine is special, but because historically mortgage rates and home prices have ZERO correlation.

From 1980-1985 home prices were flat, yet mortgage rates went as high as 19%.

From 1991-1996 home prices dropped 20% in a gradual decline, yet mortgage rates were also declining from 10% down to 7%.

From 2003-2008 we had the largest housing bubble in history with 20%+ price increases per year, yet rates stayed mostly flat at 6% that entire time.

But what happened around 2008 interest rates shot up. A lot of people had arm loans and couldn?t afford the payment.

A person can look at any chart and can interpet to their advantage. For example A person can say look housing prices went up, from year x to year y. (50 year period)

 

[Liar Loan]

Sorry daedalus, I don't agree that prices will fall enough to offset rises in interest rates... esp not in areas where financing is not as widely used due to large or all cash down payments.

I've seen this sentiment since 2008 and I have yet to see a proportionate decrease/increase is prices related to interest rates. Rates have been between 4-5% for the last how many years... yet prices keep going up... so how is that math working?

Explain to me what happened last housing crash.

Show me the math where rise/fall in interest rates were *proportionately* related to rise/fall in housing prices. The one rule I've seen in housing prices in Irvine is they usually rise much faster than than they fall.

Waiting to buy a house because thinking that prices will drop when the interest rates go up is folly... just buy what you can afford and stop worrying about the peak/valley game.

As much as it pains me, I'm going to have to agree with IHO here.  Not because Irvine is special, but because historically mortgage rates and home prices have ZERO correlation.

From 1980-1985 home prices were flat, yet mortgage rates went as high as 19%.

From 1991-1996 home prices dropped 20% in a gradual decline, yet mortgage rates were also declining from 10% down to 7%.

From 2003-2008 we had the largest housing bubble in history with 20%+ price increases per year, yet rates stayed mostly flat at 6% that entire time.

But what happened around 2008 interest rates shot up. A lot of people had arm loans and couldn?t afford the payment.

A person can look at any chart and can interpet to their advantage. For example A person can say look housing prices went up, from year x to year y. (50 year period)

Mortgage rates didn't shoot up in 2008.  What happened was the first wave of resets happened and there was no longer the ability to refinance to a new loan for many subprime borrowers.  The ARM resets led to higher payments for these borrowers due to an abundance of teaser rates at the time, but the rate on the 30 year mortgage for new borrowers remained steady. 

In 2009, the Fed started lowering rates dramatically and by that time, even ARM borrowers (those that hadn't defaulted yet) started to see lower payments with their subsequent resets.  This is a major reason why the famous Credit Suisse 'Option ARM Resets' chart never led to the doom that was predicted.  Even Option ARM's which had the most toxic of loan terms, saw their payments being lowered.

I'm not interpreting charts "to my advantage".  Any of you can take a historical rate chart and historical housing price chart and see that there is no predictive value to interest rates when predicting what home prices will do.

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EDIT:  This is the Credit Suisse chart that shows two distinctive waves of resets during that time.

The first wave was Subprime, which kicked off the housing crisis and led to a massive number of foreclosures.  The second wave was the Option ARM / Alt-A resets which never resulted in much additional damage, due to lower interest rates and extend and pretend policies, along with shadow inventory.

 

[eyephone]

But you guys.... FCBs don't care about interest rates remember? Especially in FCB villages. You know which ones I'm talking about. Homes are paid for in cash RMB.  ;D  The saying is 'Real Estate is local'. Well I'm saying 'Real Estate is Village local'. 

This is why I preach buying in FCB villages. Immune to high or low interest rates.

Since you brought it up. What do you think the intentions of the FCB buying property? (Long term, short term)

 

[the.irvine]

Many ARM loans are coming for renewal. If interest rates are high, this could potentially have an impact. I read this few days ago somewhere

 

[irvinehomeowner]

Many ARM loans are coming for renewal. If interest rates are high, this could potentially have an impact. I read this few days ago somewhere

Don't they have a max interest rate they can increase though? If you're buying high priced homes you can probably afford even a 1% increase 3-7 years later... although I don't even think that's how much they will jump.

 

[Liar Loan]

Many ARM loans are coming for renewal. If interest rates are high, this could potentially have an impact. I read this few days ago somewhere

I would be interested in seeing the article, but my take is the proportion of new loans that are ARMs vs. Fixed Rate is extremely low these days.  Only about 5-10% of new loans are adjustable. 

It's not like in the mid-00's where many people used ARMs as 'affordability products'.  Everybody and their mom and been predicting higher interest rates for 10 years now, so that has convinced many to lock in low fixed rate loans so they are set for the next 15-30 years as interest rates increase.

 

[Zion]

as much as i hope the housing prices would come down a little bit, i don't think higher rates or even the new tax reform will change much to the real estate market. higher interest rates might actually fool people to buy sooner before it goes up even higher. to make a drastic change in prices, something like recession or crash would have to happen. some people are waiting for that period, but then again that kinda situation would hurt the economy so bad many people might not be qualified to get mortgage loans.

 

[irvinebullhousing]

Here is a nice discount for you. 200K less than was purchased in 2015. FCB buyer take a bath on this one.

Former model, beautifully done. But ouch!!!
https://www.redfin.com/CA/Irvine/127-Branch-92618/home/51684947

 

[eyephone]

Here is a nice discount for you. 200K less than was purchased in 2015. FCB buyer take a bath on this one.

Former model, beautifully done. But ouch!!!
https://www.redfin.com/CA/Irvine/127-Branch-92618/home/51684947

Belly didn?t answer so I will ask you.

What do you think the intentions of the FCB buying property? (Long term, short term)

 

[Burn That Belly]

x

 

[irvinebullhousing]

Here is a nice discount for you. 200K less than was purchased in 2015. FCB buyer take a bath on this one.

Former model, beautifully done. But ouch!!!
https://www.redfin.com/CA/Irvine/127-Branch-92618/home/51684947

Belly didn?t answer so I will ask you.

What do you think the intentions of the FCB buying property? (Long term, short term)

They all looking for making money short term. I think,,,only a guess, but they will dump when opportunity is right.

 

[Liar Loan]

But you guys.... FCBs don't care about interest rates remember? Especially in FCB villages. You know which ones I'm talking about. Homes are paid for in cash RMB.  ;D  The saying is 'Real Estate is local'. Well I'm saying 'Real Estate is Village local'. 

This is why I preach buying in FCB villages. Immune to high or low interest rates.

Since you brought it up. What do you think the intentions of the FCB buying property? (Long term, short term)

To park their ill-gotten cash here away from the Xi Jiping's anti-corruption campaign crackdown. Do a search, hundreds of thousands of high ranking officials both local municipal and government folks were convicted, some even locked away for life.  Hah, 300K people. That's probably just a tip of the iceberg for China.

China says 300,000 punished for corruptionhttps://www.cbsnews.com/news/china-300000-punished-for-corruption-in-last-year/

So much for Irvine being a safe haven.  Why not put their cash in a savings account and earn 0.001% interest?

 

[eyephone]

Here is a nice discount for you. 200K less than was purchased in 2015. FCB buyer take a bath on this one.

Former model, beautifully done. But ouch!!!
https://www.redfin.com/CA/Irvine/127-Branch-92618/home/51684947

Belly didn?t answer so I will ask you.

What do you think the intentions of the FCB buying property? (Long term, short term)

They all looking for making money short term. I think,,,only a guess, but they will dump when opportunity is right.

I?m on the same page.

 

[Mety]

Here is a nice discount for you. 200K less than was purchased in 2015. FCB buyer take a bath on this one.

Former model, beautifully done. But ouch!!!
https://www.redfin.com/CA/Irvine/127-Branch-92618/home/51684947

Belly didn?t answer so I will ask you.

What do you think the intentions of the FCB buying property? (Long term, short term)

They all looking for making money short term. I think,,,only a guess, but they will dump when opportunity is right.

I?m on the same page.

So what happens when they dump?
More inventories and prices down?

 

[irvinebullhousing]

If the trends continue with more housing going on the market for sale, continue with longer, much longer before going into escrow, and further substantial rate increase. Leading to price pressure downward. The cycle keeping going like this until it find a buyer. Then price MUST comes down.

The question, is how long before we see this, or is it already here? And how deep of a discount are we going to get. Housing unlike equity, is that the movements is swift and heart wrenching. Housing will takes a lot longer. Although, I am quite surprise, with the listing of 10 % reduction, from 2015 purchased price.

Again, we see 1.3 or greater in price moves very slow, so let's see how long this will stay on the market.

 

[usctrojancpa]

If the trends continue with more housing going on the market for sale, continue with longer, much longer before going into escrow, and further substantial rate increase. Leading to price pressure downward. The cycle keeping going like this until it find a buyer. Then price MUST comes down.

The question, is how long before we see this, or is it already here? And how deep of a discount are we going to get. Housing unlike equity, is that the movements is swift and heart wrenching. Housing will takes a lot longer. Although, I am quite surprise, with the listing of 10 % reduction, from 2015 purchased price.

Again, we see 1.3 or greater in price moves very slow, so let's see how long this will stay on the market.

We are basically in summer selling season so of course you are going to see more properties hit the market.  We currently have 515 active listings on the market (including 48 new homes) while we had 270 sales in the past 30 days.  So when you do the math you get less than 2 months of inventory which is far from a buyer's market.  It'll take 4+ months of inventory before you can even consider the market neutral and to get there you'd need the number of listings to double which isn't going to happen.

 

[Jantoven]

Here is a nice discount for you. 200K less than was purchased in 2015. FCB buyer take a bath on this one.

Former model, beautifully done. But ouch!!!
https://www.redfin.com/CA/Irvine/127-Branch-92618/home/51684947

Buying the model often isn't a great idea, at least from what I've seen in most cases.

 

[irvinebullhousing]

Here is a nice discount for you. 200K less than was purchased in 2015. FCB buyer take a bath on this one.

Former model, beautifully done. But ouch!!!
https://www.redfin.com/CA/Irvine/127-Branch-92618/home/51684947

Buying the model often isn't a great idea, at least from what I've seen in most cases.

Agree. FCB likes that it is done and not having to worry about HOA landscaping guidelines. They just wire the money and docu-signs from over sea.

 

[Lallo]

I live in a suburb of LA and I?m seeing more price reductions and homes staying on the market longer than usual. I?m not in the wait for the crash crowd but I am in the wait and see crowd.

 

[daedalus]

Sorry daedalus, I don't agree that prices will fall enough to offset rises in interest rates... esp not in areas where financing is not as widely used due to large or all cash down payments.

I've seen this sentiment since 2008 and I have yet to see a proportionate decrease/increase is prices related to interest rates. Rates have been between 4-5% for the last how many years... yet prices keep going up... so how is that math working?

Who said it would be proportional?  Bubbles and crashes are driven by greed and fear and nothing in them is proportional.  But let's be clear; low rates are almost universally credited as being a large, if not the largest, factor in the housing bubble.  If we can't find common ground on that, then there's no point in debating anything further.  Did prices rise in lock step with falling rates?  No, there was a lag.  Eventually it became a  mania that fed itself.  Low lending standards only helped.

In my own little berg I see houses sitting for a lot longer than they used to.  Not a lot of price drops yet, but SFR inventory is 3x what it was less than 6 months ago.  My observation:  Rates have gone up, and sales are slowing.

Mortgage rates are only ~1% higher now than they were 2 years ago.  But the prime rate was kept at an all time low for 7 years straight after the bubble popped, and has only recently started to trend up.  I ask again, do you really think a 26% higher (@ 6%) or 53% higher (@ 8%) mortgage payment for any given loan wouldn't have much of an impact on house prices?  All I'm saying is you can expect prices to be lower than today if mortgage rates were at 6%, and even lower still if rates were at 8%, exogenous factors notwithstanding.