Surging Mortgage Rates Set Off Scramble to Buy Homes

[lnc]

I think Irvine market can tolerate up to around 6% 30 year fixed mortgage rate, but not sure what would happen if the rate goes up higher than that.

Back in the housing bubble days, the rate was around 6% and the new home asking price was around $400 per s.f. There are a lot of liar loans, subprime, adjustable with teaser rate etc.  however there are also a lot of prime burrower with real income buying home with traditional 30 year fixed mortgages at those 6% rate. 

So if the Irvine home buyers are able to afford  home at 6% rate at for homes around $400 /s.f in 2006, which after adjusted for inflation are about $500 in today's dollar, buyers can definite tolerate some rate increases. 

 

[sgip]

Believe it or not there are instances where buyers stay out of the market for what can only be described as "rate stigma". How it goes:

Borrower: Yep. Ready to buy a home.

Me: OK. Your FICO is 770. In todays market, the rate is 4.375.

Borrower: But my friends all got rates at 3.875 back in January. I want 3.875 or I won't buy.

Me: ???

It happens more often when a well qualified buyer has a low FICO and the market rate breaches 5.00. Once that 5% is laid out, even if they can afford it, even when the customer deserve it, it's a high psychological bar to leap over.

My .02c

 

[daedalus]

There's also price stigma.  I have friends that are going through that now.  Very good financials, with a big down payment.  Due to changing circumstances, they have just recently increased their filtering to look at 3BR houses, whereas before they were really targeting 5BR houses, of which there are very few around here.  Prices kept rising as they kept on looking.  They could have afforded the 5BR on day 1, but didn't want to spend that much.  Then they kept increasing their mental price cap, but always just a step behind where the market was. So now there's a bunch more homes that meet the revised criteria, but it's killing them that these houses are now 50% or more higher than they were when they first started looking.  The kids are getting older and schools matter.  I can only sympathize.  If we hadn't bought the home we're in now, we would be in the same boat, but with shallower pockets.    Makes me realize how lucky my wife and I have been...we have submitted offers on just 2 homes in our lives, and bought them both.

 

[irvinebullhousing]

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.

Makes perfect sense.

 

[irvinebullhousing]

What would it takes to bring 8 % for mortgage rate? What conditions must takes place? I know the fed not always correct about raising or lowering rate and it try to relies on monthly reading of the overall economy to make decisions. And some of the keys reading could be out of whack.

 

[usctrojancpa]

What would it takes to bring 8 % for mortgage rate? What conditions must takes place? I know the fed not always correct about raising or lowering rate and it try to relies on monthly reading of the overall economy to make decisions. And some of the keys reading could be out of whack.

It would take a lot of inflation, including high wage inflation for rates to get back up to 8%.  Wage growth has been between 1-3% for a long time. 

 

[daedalus]

The backstopping of mortgage loans by the government is a sizeable subsidy.  Take it away or reduce it and rates will go up.  But honestly 8% rates is a very scary thought.  Politicians would have to be terrified of something bigger to let that happen anytime soon.  There would be blood in the streets.

 

[irvinebullhousing]

What would it takes to bring 8 % for mortgage rate? What conditions must takes place? I know the fed not always correct about raising or lowering rate and it try to relies on monthly reading of the overall economy to make decisions. And some of the keys reading could be out of whack.

It would take a lot of inflation, including high wage inflation for rates to get back up to 8%.  Wage growth has been between 1-3% for a long time.

Exactly, so jobs are good, very good I would say currently. BUT wage growth is still kept in check. There are plenty of service pay wages which is 12-15 /hr. It hard to see long term rate 30 yrs at 8%. Down right scary if that happen.

 

[irvinehomeowner]

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.

My point is that whenever anyone says rising rates will cause housing prices to go down creates a false sense of ?wait for a better deal?.

In many cases, the higher price with the lower rate now will cost less than the higher rate with lower price later because of the lag and that historically prices rarely go lower than previous valleys.

I just don?t think using rate adjustments to predict pricing really belongs in an affordability analysis.

 

[irvinebullhousing]

The backstopping of mortgage loans by the government is a sizeable subsidy.  Take it away or reduce it and rates will go up.  But honestly 8% rates is a very scary thought.  Politicians would have to be terrified of something bigger to let that happen anytime soon.  There would be blood in the streets.

Local government rely heavily on local property taxes and our lovely Mello taxes to let things go Deep South. It will be a period of long and slow grind. So better love where you live for a long while.

 

[freedomcm]

What would it takes to bring 8 % for mortgage rate? What conditions must takes place? I know the fed not always correct about raising or lowering rate and it try to relies on monthly reading of the overall economy to make decisions. And some of the keys reading could be out of whack.

It would take a lot of inflation, including high wage inflation for rates to get back up to 8%.  Wage growth has been between 1-3% for a long time. 

What do you think would happen to rates if the donald POs the chinese enough that they stop buying treasuries?

 

[OCtoSV]

What would it takes to bring 8 % for mortgage rate? What conditions must takes place? I know the fed not always correct about raising or lowering rate and it try to relies on monthly reading of the overall economy to make decisions. And some of the keys reading could be out of whack.

It would take a lot of inflation, including high wage inflation for rates to get back up to 8%.  Wage growth has been between 1-3% for a long time. 

What do you think would happen to rates if the donald POs the chinese enough that they stop buying treasuries?

Nothing, but doing that would be tantamount to economic suicide for China. And if they lost their collective minds and did that, the Fed could mop it all up with a new round of QE, in the process inflating away the value of China's existing holdings. Until China decreases dependence on exports they will be locked in this game of forced Treasury purchases. And with their looming domestic debt bubble Xi is buckling down for some rough times ahead, which could see an even greater exodus of FCB buyers for prime US real estate.

 

[irvinebullhousing]

What would it takes to bring 8 % for mortgage rate? What conditions must takes place? I know the fed not always correct about raising or lowering rate and it try to relies on monthly reading of the overall economy to make decisions. And some of the keys reading could be out of whack.

It would take a lot of inflation, including high wage inflation for rates to get back up to 8%.  Wage growth has been between 1-3% for a long time. 

What do you think would happen to rates if the donald POs the chinese enough that they stop buying treasuries?

Nothing, but doing that would be tantamount to economic suicide for China. And if they lost their collective minds and did that, the Fed could mop it all up with a new round of QE, in the process inflating away the value of China's existing holdings. Until China decreases dependence on exports they will be locked in this game of forced Treasury purchases. And with their looming domestic debt bubble Xi is buckling down for some rough times ahead, which could see an even greater exodus of FCB buyers for prime US real estate.

 

[Liar Loan]

Thinking of selling your home? Do it before 2020, economists say

Prospective home buyers these days are probably feeling pressure to lock in a deal quickly given skyrocketing home prices across most of the country. But those who wait a couple of years may be rewarded.

Real-estate website Zillow and research firm Pulsenomics surveyed more than 100 real-estate experts and economists ? and roughly half of them predicted that the next recession will begin sometime in 2020, most likely in the first quarter.  While the housing bubble prompted the last recession, experts generally agreed that real estate won?t play a major role in the next one.

Instead, the experts predicted that monetary policy will be the deciding factor this time around. In particular, they argued that the Federal Reserve could prompt slower growth if it raises short-term interest rates too quickly.  Even though the housing market likely won?t be the cause of the next recession, an economic downturn would still have an impact on real estate.

?Any time there are widespread job losses, particularly if these job losses are protracted, the housing market softens ? even if the housing market isn?t the central cause or most prominent casualty of the downturn,? Terrazas said. ?The spillover to the housing market will depend on the depth, length and severity of the next recession and, if some parts of the country feel the impact worse than others, some localized regional housing markets could see deeper effects.?

Previously, the panel predicted that any upcoming recession would have a moderate impact on the housing market, with real-estate values in cities such as San Francisco, Miami, Los Angeles, New York, San Diego and Seattle likely to be the most affected.

https://www.marketwatch.com/story/e...-2020-when-the-next-recession-hits-2018-05-22

 

[usctrojancpa]

Thinking of selling your home? Do it before 2020, economists say

Prospective home buyers these days are probably feeling pressure to lock in a deal quickly given skyrocketing home prices across most of the country. But those who wait a couple of years may be rewarded.

Real-estate website Zillow and research firm Pulsenomics surveyed more than 100 real-estate experts and economists ? and roughly half of them predicted that the next recession will begin sometime in 2020, most likely in the first quarter.  While the housing bubble prompted the last recession, experts generally agreed that real estate won?t play a major role in the next one.

Instead, the experts predicted that monetary policy will be the deciding factor this time around. In particular, they argued that the Federal Reserve could prompt slower growth if it raises short-term interest rates too quickly.  Even though the housing market likely won?t be the cause of the next recession, an economic downturn would still have an impact on real estate.

?Any time there are widespread job losses, particularly if these job losses are protracted, the housing market softens ? even if the housing market isn?t the central cause or most prominent casualty of the downturn,? Terrazas said. ?The spillover to the housing market will depend on the depth, length and severity of the next recession and, if some parts of the country feel the impact worse than others, some localized regional housing markets could see deeper effects.?

Previously, the panel predicted that any upcoming recession would have a moderate impact on the housing market, with real-estate values in cities such as San Francisco, Miami, Los Angeles, New York, San Diego and Seattle likely to be the most affected.

https://www.marketwatch.com/story/e...-2020-when-the-next-recession-hits-2018-05-22

I'm watching for 2 things....when and if the bond yield curve inverts (aka short term rates are higher than long term rates) which typically is a tea leaf that a recession might be coming in 12-18 months and the level of resale homes on the market (i.e. number of months of inventory). 

 

[irvinebullhousing]

Thinking of selling your home? Do it before 2020, economists say

Prospective home buyers these days are probably feeling pressure to lock in a deal quickly given skyrocketing home prices across most of the country. But those who wait a couple of years may be rewarded.

Real-estate website Zillow and research firm Pulsenomics surveyed more than 100 real-estate experts and economists ? and roughly half of them predicted that the next recession will begin sometime in 2020, most likely in the first quarter.  While the housing bubble prompted the last recession, experts generally agreed that real estate won?t play a major role in the next one.

Instead, the experts predicted that monetary policy will be the deciding factor this time around. In particular, they argued that the Federal Reserve could prompt slower growth if it raises short-term interest rates too quickly.  Even though the housing market likely won?t be the cause of the next recession, an economic downturn would still have an impact on real estate.

?Any time there are widespread job losses, particularly if these job losses are protracted, the housing market softens ? even if the housing market isn?t the central cause or most prominent casualty of the downturn,? Terrazas said. ?The spillover to the housing market will depend on the depth, length and severity of the next recession and, if some parts of the country feel the impact worse than others, some localized regional housing markets could see deeper effects.?

Previously, the panel predicted that any upcoming recession would have a moderate impact on the housing market, with real-estate values in cities such as San Francisco, Miami, Los Angeles, New York, San Diego and Seattle likely to be the most affected.

https://www.marketwatch.com/story/e...-2020-when-the-next-recession-hits-2018-05-22

I'm watching for 2 things....when and if the bond yield curve inverts (aka short term rates are higher than long term rates) which typically is a tea leaf that a recession might be coming in 12-18 months and the level of resale homes on the market (i.e. number of months of inventory).

Party Time!!!