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Information onlysorry, the spacing I used when typing doesn't show up in the post - you have to read across carefully :-((
Recently, interest rates have been pretty much on the uptick.
For those of you who are on the fence with regard to "buy now or wait till prices drop", I thought I'd post a chart that shows the impact of rising interest rates vs. monthly payments.
If you're thinking of selling, keep in mind it will affect you through your potential buyers.
LOAN AMT $360,000 $370,000 $380,000 $390,000 $400,000
Price Drop -10% -7.5% -5% -2.5%
The above example uses a self-amortizing loan of $400,000 (Principal and Interest only) as starting point. If the interest rate goes from 4.5% to 5.5% during the wait, all things being equal, a buyer only qualifies for a $360K loan, with the payment going from $2,026 to $2,044/month; if qualifying isn't an issue, the price still just went up.
Whatever your loan amount, the principle of the above example remains the same - a 1% increase in interest rates equals approx. a 10% drop in the mortgage amount, to keep (almost) the same monthly payments.
Any questions, let me know or talk to your Loan Officer.
P.S.: RE taxes and HO insurance are NOT included in the above example...
Last edited by Elke Mariotti; 12-21-2010 at 05:40 PM..
Yeah, just means prices will come down more. Pretty simple math on a budget with all your other costs going up (energy, food, taxes, insurance, et al).
more typically the opposite happens. as folks who were on the fence about buying realize that each uptick in rates is the same in the monthly payment as if the price of the home rose 10% and the ole we better buy now before we can afford even less house mentality kicks in..
that usually puts pressure on home prices and causes them to rise.
historically all the best home appreciation has happened while rates rose. the normal average mortgage rate is around 7%. the biggest appreciation had been between 6-8% typically.
no one knows what will pan out this time but thinking home prices will fall if rates rise can be just as wrong as thinking that home prices will rise if rates came down. we are around the lowest rates in history and there are so many other factors involved other then rates that control where home prices go.
while yes unemployment is high the fact is over the last 2 years a ton of wealth has been made in the markets as well and some of that money will eventually find its way back into real estate. any investors who committed funds are up over 100% buying simple funds .time will tell whats next but one thing is for sure.
whatever looks like a given will not pan out as stuff not even on the rader yet will alter the course of what looks like it has to play out a certain way we all expect..
more typically the opposite happens. as folks who were on the fence about buying realize that each uptick in rates is the same in the monthly payment as if the price of the home rose 10% and the ole we better buy now before we can afford even less house mentality kicks in..
that usually puts pressure on home prices and causes them to rise.
historically all the best home appreciation has happened while rates rose. the normal average mortgage rate is around 7%. the biggest appreciation had been between 6-8% typically.
no one knows what will pan out this time but thinking home prices will fall if rates rise can be just as wrong as thinking that home prices will rise if rates came down. we are around the lowest rates in history and there are so many other factors involved other then rates that control where home prices go.
while yes unemployment is high the fact is over the last 2 years a ton of wealth has been made in the markets as well and some of that money will eventually find its way back into real estate. any investors who committed funds are up over 100% buying simple funds .time will tell whats next but one thing is for sure.
whatever looks like a given will not pan out as stuff not even on the rader yet will alter the course of what looks like it has to play out a certain way we all expect..
haha - what?
Investors?! 33 weeks... over 8 months straight of domestic equity net OUTFLOWS. Insider selling dominates buying. The only thing propping the market is the daily Brain Sack POMO from the NYFed putting billions into the big bank pockets. It's wealth preservation for the rich, nothing more. Nobody buying a 3-400k house made "a ton of wealth" out of the stock market casino in the past 2 years. So who are the investors you're referring to? The FBI is taking down the hedge funds... Your own AG is taking down E&Y... The bigs are insolvent. Please. I don't know anyone making $100k a year with significant investment in "the markets" you refer to and this is the entire crux of your argument - "The market is making people wealthy so home prices will rise".
Wages have been stagnant or going down overall for years... un(der)employment reaching 99 weeks and cutting more people off... easily 1 in 5 people who want to work can't find it... everything we buy every day (gas, foodstuffs) is going up... taxes going up... insurance going up... foreclosures and bankruptcies at all time highs...
Losing control of the rates (which Bernanke was 100% confident would never happen speaking to 60Minutes just recently) would CRUSH the housing market. If rates spike up further, people are not going to be able to afford to pay MORE for a house. I mean wow - it's that type of thinking that got us into this whole mess. Money cannot be made up out of thin air without consequences.
It's simple and we really need to get back to sane economic basics... You make X dollars - your budget for monthly housing costs is Y. If Y is going up due to the interest rates and X is not changing (at least you hope to keep your job), you can't magically afford more and push prices up. At least let this bubble finish deflating before you inflate the next one.
since 2008's low almost every diversified fund is up close to 100% or better...... theres quite a bit of dough that some have made over that time frame. at this point most who stayed the course are back to even and alot like mysef are even breaking new record net worth highs simply from rebalancing at the lows.
im not predicting home prices will soar but im not predicting that a rise in rates will cause much of a drop if any.
historically rising rates have resulted in rising home prices as odd as it sounds.
since 2008's low almost every diversified fund is up close to 100% or better...... theres quite a bit of dough that some have made over that time frame. at this point most who stayed the course are back to even and alot like mysef are even breaking new record net worth highs simply from rebalancing at the lows.
im not predicting home prices will soar but im not predicting that a rise in rates will cause much of a drop if any.
historically rising rates have resulted in rising home prices as odd as it sounds.
Just a couple of questions: 1) Where is the majority of investment funds held - Pension/Endowments, 401K/IRAs or outside taxable investments?
The vast majority of investment funds are not held by the individual retail investor, rather they are maintained in institutional funds (ie. Pensions, 401k/IRA's and Endowments (ie. hedge funds playing with leverage). Now, how many average joes do you know look at their IRA or 401k and say, you know what honey, we are up 50% in our retirement fund that we can't touch until we are 59.5, lets go out and buy a house?
2) If low rates were the spark for lighting up the housing market, please tell me and the general forum at large, just how higher rates are supposed to keep the bonfire going? Look honey, we better get in before we are locked out? Isn't that what got us into this colassal f-up? The key here is jobs, jobs, jobs, rates can go up, rates can go down, if you don't have a job, you will not qualify for a mortgage. Even if 1% or 5% of the total population had enough cash to buy the home outright, that alone will not carry the housing market upwards or keep it flat.
3) The government is acting as a counterbalance to increasing home prices. How? Raising taxes, raise the overall cost of owning. Why would you own, if you could rent and avoid all those extra costs? This is a RENTERS market, not an owners market. The goverment has made it clear to stick it to the owners. Keep voting for those school budgets.
Just a couple of questions: 1) Where is the majority of investment funds held - Pension/Endowments, 401K/IRAs or outside taxable investments?
The vast majority of investment funds are not held by the individual retail investor, rather they are maintained in institutional funds (ie. Pensions, 401k/IRA's and Endowments (ie. hedge funds playing with leverage). Now, how many average joes do you know look at their IRA or 401k and say, you know what honey, we are up 50% in our retirement fund that we can't touch until we are 59.5, lets go out and buy a house?
2) If low rates were the spark for lighting up the housing market, please tell me and the general forum at large, just how higher rates are supposed to keep the bonfire going? Look honey, we better get in before we are locked out? Isn't that what got us into this colassal f-up? The key here is jobs, jobs, jobs, rates can go up, rates can go down, if you don't have a job, you will not qualify for a mortgage. Even if 1% or 5% of the total population had enough cash to buy the home outright, that alone will not carry the housing market upwards or keep it flat.
3) The government is acting as a counterbalance to increasing home prices. How? Raising taxes, raise the overall cost of owning. Why would you own, if you could rent and avoid all those extra costs? This is a RENTERS market, not an owners market. The goverment has made it clear to stick it to the owners. Keep voting for those school budgets.
Conventional wisdom says exactly what your saying,im not disagreeing ...
but history says it can turn out otherwise.. there is just as much of a chance rising rates could spur a little fire under those who can afford to do so to buy a home .time will tell, it doesnt really matter what you ,i or anyone else thinks will happen.
Well yep, thats true of anything that involves predicting its no different then the weather or next years sports outcomes. no one knows where any markets will .but the bottom line is dont make the assumption that when rates rise home prices will fall. you maybe very surprised it doesnt happen.
since 2008's low almost every diversified fund is up close to 100% or better...... theres quite a bit of dough that some have made over that time frame. at this point most who stayed the course are back to even and alot like mysef are even breaking new record net worth highs simply from rebalancing at the lows.
im not predicting home prices will soar but im not predicting that a rise in rates will cause much of a drop if any.
historically rising rates have resulted in rising home prices as odd as it sounds.
Can't agree more. People assume that low rates directly and immediately affects RE. It doesn't. First- Monetary stimulus usually has a lag of 6-12 months until its effects are seen on the market. Same with Fiscal stimulus (RE- Obama keeping the tax cuts are essentially QE3). If anything, the decline in rates over the last 2 years to record lows actually meant houses (and assets in USD$) were deflating - What happens on the upside is the opposite. Actually with all this stimulus and data I have seen that showed credit expanding again, I can't see inflation remaining tame much longer. It's already hit Cotton prices (+200%), Oil (now over $90/Bl $3.50 Gas +120%, corn, wheat, silver, gold, platinum, coffee, cocoa, copper and almost every major commodity by at least 50%+).
Now, the 10-yr has spiked from ~2% to nearly 3.5% in the last 3 weeks. This bond market is saying that inflation is coming in all things US$ based. That would include houses. Think about what happens to the cost of building a new home (replacement cost) with all the inputs associated rising dramatically (Lumber, Energy, insurance, labor, windows, aluminum, copper, roofing, concrete etc). The rising costs of new homes directly and logically affects previously owned home prices. If you notice, rates rose steadily from 2003-2006 and that is when most of the appreciation occurred in home prices. So the rates rising vs home price correlation actually appears to point to higher asset prices across the board when rates rise. Why people are pulling out of the bond market is another question: but that money(in the $trillions) will find other asset classes - Usually the stock market first. The main things that can hold down the LI REmarket specifically are:
a)taxes rising even more than they have
b)high oil/gas prices affecting towns further from NYC - ie- (especially in towns solely relying on autos with unreliable/inconvenient LIRR)
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sorry, the spacing I used when typing doesn't show up in the post - you have to read across carefully :-((
or talk to your Loan Officer.
The key here is jobs, jobs, jobs, rates can go up, rates can go down, if you don't have a job, you will not qualify for a mortgage. Even if 1% or 5% of the total population had enough cash to buy the home outright, that alone will not carry the housing market upwards or keep it flat.
