When are we going to see mortgages rates going up to 8-10%

NEW -> Contingent Buyer Assistance Program
[quote author="tmare" date=1232064442][quote author="IrvineRealtor" date=1232034979][quote author="tmare" date=1232033528][quote author="stepping_up" date=1232019422]I don't think the vast majority of people looking to buy understand the difference interest rates make. They either have a number in their head that they can afford or have prequalified before at higher rates and are only looking at prices that work with the higher rate they qualified for or put in a calculator.</blockquote>




Definitely true, but most people don't understand that the price is more important than the rate. People are willing to buy for whatever they qualify for and they don't think very clearly about the consequences.</blockquote>


tmare - Please clarify.

Why do you believe that sales price is more important than the interest rate?

Or are you making another statement?

I don't think that I agree.</blockquote>


Rates can change, price can't change. I'm just saying that I wouldn't use the current low rates as a justification for buying a house now when we all believe that prices are still going to drop further.</blockquote>


Both rates <strong>and </strong>price can rise or fall, depending on market factors.



One of the many reasons people overbought is because they were offered a teaser rate and the promise that "you can always refinance" which is an obvious fallacy. If rates had gone up, refinancing would not be desirable. If the prices for the same home had moved down (established by market value and appraisal) refinancing would also be untenable.



As another example with numbers:

A $1M home with 20% down at a 5% interest rate yields a (principle and interest) payment of $4294.57/month.

If rates change to 6%, that same buying power of $4294.57/month will only buy a loan for $717,576.56, affording a home of $917,576.56 assuming the same $200K down payment.

If "prices" had dropped $50,000 (a 5% drop) on the million dollar home, it would still "cost" you $32,423.44 more if there was a 1% interest rate hike.



<img src="http://irvinerealtorsite.com/interestdifference.JPG" alt="" />



-IrvineRealtor
 
[quote author="IrvineRealtor" date=1232068943]



<strong>One of the many reasons people overbought is because they were offered a teaser rate and the promise that "you can always refinance" which is an obvious fallacy. </strong>

</blockquote>


That right there my friends on IHB is or was the GREATEST LIE EVER TOLD!!



The truth is...



It's better to buy as low as possible with a high interest rate....you can always refi rates if they go lower but you can NEVER reset your purchase price.



In the end people...mortgage rates mean jack to me.



Panda...2012...mortgage rates won't be over 8%..book it!! This economy isn't turning around that easily to justify mortgages at 10-12%.
 
"Both rates and price can rise or fall, depending on market factors."



Once you buy, the price doesn't change, that's the whole point of the argument. Rates can change after you buy, price does not.
 
[quote author="IrvineRealtor" date=1232068943][quote author="tmare" date=1232064442][quote author="IrvineRealtor" date=1232034979][quote author="tmare" date=1232033528][quote author="stepping_up" date=1232019422]I don't think the vast majority of people looking to buy understand the difference interest rates make. They either have a number in their head that they can afford or have prequalified before at higher rates and are only looking at prices that work with the higher rate they qualified for or put in a calculator.</blockquote>




Definitely true, but most people don't understand that the price is more important than the rate. People are willing to buy for whatever they qualify for and they don't think very clearly about the consequences.</blockquote>


tmare - Please clarify.

Why do you believe that sales price is more important than the interest rate?

Or are you making another statement?

I don't think that I agree.</blockquote>


Rates can change, price can't change. I'm just saying that I wouldn't use the current low rates as a justification for buying a house now when we all believe that prices are still going to drop further.</blockquote>


Both rates <strong>and </strong>price can rise or fall, depending on market factors.



One of the many reasons people overbought is because they were offered a teaser rate and the promise that "you can always refinance" which is an obvious fallacy. If rates had gone up, refinancing would not be desirable. If the prices for the same home had moved down (established by market value and appraisal) refinancing would also be untenable.



As another example with numbers:

A $1M home with 20% down at a 5% interest rate yields a (principle and interest) payment of $4294.57/month.

If rates change to 6%, that same buying power of $4294.57/month will only buy a loan for $717,576.56, affording a home of $917,576.56 assuming the same $200K down payment.

If "prices" had dropped $50,000 (a 5% drop) on the million dollar home, it would still "cost" you $32,423.44 more if there was a 1% interest rate hike.



<img src="http://irvinerealtorsite.com/interestdifference.JPG" alt="" />



-IrvineRealtor</blockquote>


Oh c'mon now, is that a deliberate attempt to distort the facts? P&I? Try PITI for an instant, simplified illustration of why the lower price/higher interest rate represents a better financial opportunity. And that's a superficial, simple illustration that ignores a lot of other relevant factors.
 
*Paging IR*



I'll try again, this time including PITIA.

You'll see that a 1% swing up to 6% changes the buying power of a regular monthly payment down approximately 7% to around $930K.

You'll also see that a 1% swing down to 4% brings the buying power up by more than 8% to $1.8M+



<img src="http://irvinerealtorsite.com/interestdifference2.JPG" alt="" />



[quote author="tmare" date=1232078313]Once you buy, the price doesn't change, that's the whole point of the argument. Rates can change after you buy, price does not.</blockquote>


Rates will change, yes. And if someone wanted to capitalize on the change in rates, they would need to go through the refinancing process for the home. Within a refinance, there is an appraisal process which looks at the <strong>current </strong>market value of the home, <strong>not </strong>the price it was purchased at. This is why I submit that price <strong>does </strong>change, whether you sell or not. It is an important distinction.



[quote author="optimusprime" date=1232075498]

The truth is...

It's better to buy as low as possible with a high interest rate....you can <strong>always </strong>refi rates <span style="color: red;"><strong>if</strong></span> they go lower but you can NEVER reset your purchase price.</blockquote>


That is a big "IF" tied to that "always" in there, optimus. Those people that are losing their homes over the last few years hung their hat on that "if" that now have to hang it somewhere else. They are unable to refinance their way out of trouble.



[quote author="mikal1" date=1232080497]Oh c'mon now, is that a deliberate attempt to distort the facts? P&I? Try PITI for an instant, simplified illustration of why the lower price/higher interest rate represents a better financial opportunity. And that's a superficial, simple illustration that ignores a lot of other relevant factors.</blockquote>


Thank you mikal - the inclusion of the the PITIA numbers makes this example more useful, but you are right - there are many other factors that could be included as relevent. (btw, adding the taxes complicated the equation immensely and forced me to work around a circular reference. You'll see there is not a large difference for a much more difficult calculation.) I'm certainly not trying to distort the facts. My entire existence here on the blog has been hopefully to shed some light on the facts. Take a look at my track record and see. My only intent was to show empirically that the buying power is tied intimately to price and interest rate, both positively and negatively.



If I'm misstating something or unclear, feel free to bash away.

Please also reference <strong><a href="http://www.irvinehousingblog.com/blog/comments/timing-does-matter/">Timing Does Matter</a></strong> that IrvineRenter posted in analysis previously.

-IrvineRealtor
 
[quote author="IrvineRealtor" date=1232089957]



[quote author="optimusprime" date=1232075498]

The truth is...

It's better to buy as low as possible with a high interest rate....you can <strong>always </strong>refi rates <span style="color: red;"><strong>if</strong></span> they go lower but you can NEVER reset your purchase price.</blockquote>


That is a big "IF" tied to that "always" in there, optimus. Those people that are losing their homes over the last few years hung their hat on that "if" that now have to hang it somewhere else. They are unable to refinance their way out of trouble.





-IrvineRealtor</blockquote>


IR in the context of what I am saying...people did not buy low, they bought extremely overpriced homes.



Rates at this point are not even an issue.



The people who bought then hung their hat on more of the "IF" their home keeps going up in value. It was their stupidity to not realize, homes do go down and when you owe more on your mortgage than your home is worth... you can't refi.
 
While IR2's number show how price and rate are both important... I would rather have the lower price and higher rate. Regardless of refinancing or not... my principal balance would be lower, my property taxes would be lower and if I ever have to sell due to unforeseen circumstances, that gives me more flexibility.



And even though appraisal price does change if you do refinance... the loan balance does not... which is more important for LTV. It also helps with how much money you make or lose if you decide to sell.
 
[quote author="tenmagnet" date=1232091452]Great stuff!



Who?s giving out the 800K at 5%?</blockquote>
Yeah, a rich tooth fairy. haha You better bring that loan down to $417k if you want 5%.
 
[quote author="usctrojanman29" date=1232095367][quote author="tenmagnet" date=1232091452]Great stuff!



Who?s giving out the 800K at 5%?</blockquote>
Yeah, a rich tooth fairy. haha You better bring that loan down to $417k if you want 5%.</blockquote>


What's the going rate for the next bracket?
 
[quote author="Roo" date=1232095917][quote author="usctrojanman29" date=1232095367][quote author="tenmagnet" date=1232091452]Great stuff!



Who?s giving out the 800K at 5%?</blockquote>
Yeah, a rich tooth fairy. haha You better bring that loan down to $417k if you want 5%.</blockquote>


What's the going rate for the next bracket?</blockquote>


Keep your teeth. You'll want to use them later.

<strong><a href="https://www.penfed.org/productsAndRates/mortgages/mortgageRatesListing.asp">Penfed</a></strong>.
 
[quote author="usctrojanman29" date=1232095367][quote author="tenmagnet" date=1232091452]Great stuff!



Who?s giving out the 800K at 5%?</blockquote>
Yeah, a rich tooth fairy. haha You better bring that loan down to $417k if you want 5%.</blockquote>


My brother is completing a refi with PenFed of $975K at 4.75%. That's on a 5-year though. You can finance $800K with them on a 30-year at 5.5% with a half point.



You can get a super conforming (to $625K) at 5% with no points from many places today.
 
[quote author="tmare" date=1232064442]

Rates can change, price can't change. I'm just saying that I wouldn't use the current low rates as a justification for buying a house now when we all believe that prices are still going to drop further.</blockquote>


I think people have become conditioned to the idea of falling and relatively low mortgage interest rates. In general, they have been headed down for 25 years... Hard not to get used to that.



People who bought in the mid 60's had 15 years of generally increasing mortgage rates so their refi potential was generally nil. We could be in for another decade or two long cycle of generally increasing rates, especially on loan amounts in the $400-600K range.



<img src="http://www.ipoplaya.com/mortgagetrend.jpg" alt="" />
 
The graph doesn't lie!



That said, since we are now at historically low rates, and the gov't is spending money like they are printing it (!), don't most people think that rates are likely to rise over the next year or three?



So if you buy in the next few years, you are basically going to have to live with that fixed rate for the next 5 years (or 15, if this is the equivalent of 1977)
 
Interest rates on just about everything have been much lower in the last 10 years. Is it possible that the cost of money has gone done for several reasons



1). The world believes that the inflation monster cannot raise its head in developed countries for any prolonged period again. The inflation we saw in the '70's is a distant memory to some, never lived through for others and those that do look at it believe we now know how to tackle it before it becomes infectious?



2). Credit scoring has improved dramatically so that risk can be better assessed?



3). There is just a lot more money out there seeking investment.
 
[quote author="IrvineRealtor" date=1232091349]*Paging IR*



I'll try again, this time including PITIA.

You'll see that a 1% swing up to 6% changes the buying power of a regular monthly payment down approximately 7% to around $930K.

You'll also see that a 1% swing down to 4% brings the buying power up by more than 8% to $1.8M+



<img src="http://irvinerealtorsite.com/interestdifference2.JPG" alt="" />



[quote author="tmare" date=1232078313]Once you buy, the price doesn't change, that's the whole point of the argument. Rates can change after you buy, price does not.</blockquote>


Rates will change, yes. And if someone wanted to capitalize on the change in rates, they would need to go through the refinancing process for the home. Within a refinance, there is an appraisal process which looks at the <strong>current </strong>market value of the home, <strong>not </strong>the price it was purchased at. This is why I submit that price <strong>does </strong>change, whether you sell or not. It is an important distinction.



[quote author="optimusprime" date=1232075498]

The truth is...

It's better to buy as low as possible with a high interest rate....you can <strong>always </strong>refi rates <span style="color: red;"><strong>if</strong></span> they go lower but you can NEVER reset your purchase price.</blockquote>


That is a big "IF" tied to that "always" in there, optimus. Those people that are losing their homes over the last few years hung their hat on that "if" that now have to hang it somewhere else. They are unable to refinance their way out of trouble.



[quote author="mikal1" date=1232080497]Oh c'mon now, is that a deliberate attempt to distort the facts? P&I? Try PITI for an instant, simplified illustration of why the lower price/higher interest rate represents a better financial opportunity. And that's a superficial, simple illustration that ignores a lot of other relevant factors.</blockquote>


Thank you mikal - the inclusion of the the PITIA numbers makes this example more useful, but you are right - there are many other factors that could be included as relevent. (btw, adding the taxes complicated the equation immensely and forced me to work around a circular reference. You'll see there is not a large difference for a much more difficult calculation.) I'm certainly not trying to distort the facts. My entire existence here on the blog has been hopefully to shed some light on the facts. Take a look at my track record and see. My only intent was to show empirically that the buying power is tied intimately to price and interest rate, both positively and negatively.



If I'm misstating something or unclear, feel free to bash away.

Please also reference <strong><a href="http://www.irvinehousingblog.com/blog/comments/timing-does-matter/">Timing Does Matter</a></strong> that IrvineRenter posted in analysis previously.

-IrvineRealtor</blockquote>


Thanks, didn't really mean to attack, and certainly nothing personal.



OK, so now take a closer look at your taxes. You've established your basis for each purchase, you've put in year 1 numbers, now just make those yearly values and take a look at the difference. But now your taxes start increasing by 2% per-year. So what do the year 2 numbers look like? And then year 3,......



Purchase Price year 1 year 2

$1,000,000 = 14000.00 14280.00

$931,222.23 = 13020.00 13280.00

$1,081,305.59 = 15132.00 15435.00



Do you see the trend? Do you know how much in taxes you would save over 30-years if you bought at the lowest price/highest interest rate? But wait, that's an oversimplification - now you have to take those savings each year, stick them into some type of savings/investment, and start compounding. I'll tell you right now that you are going to be looking at a significant amount of money by most measures.
 
[quote author="mikal1" date=1232106111][quote author="IrvineRealtor" date=1232091349]*Paging IR*



I'll try again, this time including PITIA.

You'll see that a 1% swing up to 6% changes the buying power of a regular monthly payment down approximately 7% to around $930K.

You'll also see that a 1% swing down to 4% brings the buying power up by more than 8% to $1.8M+



<img src="http://irvinerealtorsite.com/interestdifference2.JPG" alt="" />



[quote author="tmare" date=1232078313]Once you buy, the price doesn't change, that's the whole point of the argument. Rates can change after you buy, price does not.</blockquote>


Rates will change, yes. And if someone wanted to capitalize on the change in rates, they would need to go through the refinancing process for the home. Within a refinance, there is an appraisal process which looks at the <strong>current </strong>market value of the home, <strong>not </strong>the price it was purchased at. This is why I submit that price <strong>does </strong>change, whether you sell or not. It is an important distinction.



[quote author="optimusprime" date=1232075498]

The truth is...

It's better to buy as low as possible with a high interest rate....you can <strong>always </strong>refi rates <span style="color: red;"><strong>if</strong></span> they go lower but you can NEVER reset your purchase price.</blockquote>


That is a big "IF" tied to that "always" in there, optimus. Those people that are losing their homes over the last few years hung their hat on that "if" that now have to hang it somewhere else. They are unable to refinance their way out of trouble.



[quote author="mikal1" date=1232080497]Oh c'mon now, is that a deliberate attempt to distort the facts? P&I? Try PITI for an instant, simplified illustration of why the lower price/higher interest rate represents a better financial opportunity. And that's a superficial, simple illustration that ignores a lot of other relevant factors.</blockquote>


Thank you mikal - the inclusion of the the PITIA numbers makes this example more useful, but you are right - there are many other factors that could be included as relevent. (btw, adding the taxes complicated the equation immensely and forced me to work around a circular reference. You'll see there is not a large difference for a much more difficult calculation.) I'm certainly not trying to distort the facts. My entire existence here on the blog has been hopefully to shed some light on the facts. Take a look at my track record and see. My only intent was to show empirically that the buying power is tied intimately to price and interest rate, both positively and negatively.



If I'm misstating something or unclear, feel free to bash away.

Please also reference <strong><a href="http://www.irvinehousingblog.com/blog/comments/timing-does-matter/">Timing Does Matter</a></strong> that IrvineRenter posted in analysis previously.

-IrvineRealtor</blockquote>


Thanks, didn't really mean to attack, and certainly nothing personal.



OK, so now take a closer look at your taxes. You've established your basis for each purchase, you've put in year 1 numbers, now just make those yearly values and take a look at the difference. But now your taxes start increasing by 2% per-year. So what do the year 2 numbers look like? And then year 3,......



Purchase Price year 1 year 2

$1,000,000 = 14000.00 14280.00

$931,222.23 = 13020.00 13280.00

$1,081,305.59 = 15132.00 15435.00



Do you see the trend? Do you know how much in taxes you would save over 30-years if you bought at the lowest price/highest interest rate? But wait, that's an oversimplification - now you have to take those savings each year, stick them into some type of savings/investment, and start compounding. I'll tell you right now that you are going to be looking at a significant amount of money by most measures.</blockquote>


If your purchase price was too high, over market, you can go to the county and have your tax lowered.
 
<blockquote>If your purchase price was too high, over market, you can go to the county and have your tax lowered.</blockquote>


Huh? Please explain how you do that? And hopefully we're not confusing the ability to apply for a temporary, new basis based on significant decreases in market value. And keep in mind that while that temporary, new basis is in effect your original basis (plus any interim increases) is still there, right next to the new one. And still being incremented each year. Then when your temporary, new basis expires, wham!
 
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