Effect of rising mortgage rates on future Houston real estate prices

[Lowexpectations]

Originally Posted by Kiovo

Same reason why they take out a 60 or 72 month car note.

And yes, if interest rates goes up 2% and you can no longer afford the home you want, you probably couldn't of afforded it at 3 or 4% rates. Housing will slow down but it's not necessarily a bad thing. Growth has been exponential, it has to slow down at some point.

Being able to afford or being able to obtain a loan are two different things

[EasilyAmused]

Originally Posted by Lowexpectations

If you still aren't getting it then economics as a whole aren't something you understand. The concepts and real world application are very simple. A 2% rise will reduce the number of buyers in all segments and a reduced number of buyers will pressure pricing. This is all very basic

Yes yes yes basic economics. Something banks and lenders throw out the window everytime greed comes into play. 120k salary qualifying for 500k house is absurd.

But if you read, most of us agree that this is a good correction for economic stability. It will force people back into categories they actually can afford. 2% is not going to effect any buyers if they are buying within their means.

[Lowexpectations]

Originally Posted by EasilyAmused

Yes yes yes basic economics.

But if you read, most of us agree that this is a good correction for economic stability. It will force people back into categories they actually can afford.

Then it has an impact of the values of what is currently the 500m-1mm range.

[houstonfan]

Yes, you're right, anytime there is a significant rate increase, it lowers the pool of potential buyers. And historically, when interest rates go up, it puts downward pressure on home prices and vice versa. -Except during the last recession where interest rates were artificially lowered as housing prices dropped. It seems that most people I know, except for the fabulously rich, buy more house than they can comfortably afford so a significant rate increase would cut out those people. People that can comfortably afford a 1Mil house will build a 2Mill home, and etc, to keep up with the Jones.

[EasilyAmused]

Originally Posted by Lowexpectations

Then it has an impact of the values of what is currently the 500m-1mm range.

Yes it does. And I still say good. It's better than artifically inflating prices by lending to those that can't keep up with the payments.

[Lowexpectations]

Originally Posted by EasilyAmused

Yes it does. And I still say good. It's better than artifically inflating prices by lending to those that can't keep up with the payments.

That has actually been done already, artificial low rates brought more buyers to the table than would have otherwise been around, pushing prices back up. These folks that got in would be fine unless they are in ARMs or move, nevertheless less buyers will be there when points jump 2 points

[Htown2013]

What people can afford in reality for housing is a function of their savings, income, and mortgage interest. For the sake of argument, a person making 120k could easily afford a 500k house if 30 yr fixed rates were 2.5%. If rates were 7.5%, someone with a much higher salary could not afford a 500k house. People belong in houses they can afford at the time they purchase, and affordability is a variable if a mortgage is required.

Rising rates will affect all buyers relatively similarly at all price and income levels. I predict people who bought high at low rates will not want to sell, and I wonder if we'd see less relocations or more people holding on to their homes. The only people not affected and who may benefit from rising rates are cash buyers. Very few people early in their careers can pay cash for a $400-500k property, even if they are well paid, hardworking, and disciplined. It takes time to get there.

What baffles me is that rates are 1% higher than last year and prices are 15-20% higher in Sugar Land and likely more in the loop and the EC, despite the rates increase.