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Old 02-20-2018, 04:02 PM
 
Location: Huntington Beach, CA
86 posts, read 73,729 times
Reputation: 144

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My point is that the interest rate affects the monthly payment.

The monthly payment on a 770k house at 3.5% interest rate is the same as the monthly payment on a 550k house at a 7% interest rate.

For a 700k house, the monthly payment for 20% down and a 3.5% interest rate is 3200/month. At a 7.0% interest rate the payment would be 4400/month.

The concern is that, given a fixed price, an increase in interest rate from recent numbers to more normal rates would cause a big increase in the required monthly payment.
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Old 02-20-2018, 04:33 PM
 
Location: So Ca
26,580 posts, read 26,455,782 times
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Quote:
Originally Posted by iExtrapolate View Post
My point is that the interest rate affects the monthly payment.
It's doubtful that the rate would be jumping several points at a time. And if they start to rise by increments, people will abandon the ARM and lock in their lower rates with a fixed loan. I agree that anyone looking to buy a home, first timer or not, is definitely keeping interest rates in mind.
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Old 02-20-2018, 07:27 PM
 
Location: Huntington Beach, CA
86 posts, read 73,729 times
Reputation: 144
Quote:
Originally Posted by CA4Now View Post
It's doubtful that the rate would be jumping several points at a time. And if they start to rise by increments, people will abandon the ARM and lock in their lower rates with a fixed loan. I agree that anyone looking to buy a home, first timer or not, is definitely keeping interest rates in mind.
That's what I mean, if it stays at 4.2%, it's unlikely that prices will drop. If the rates go up to 6%, they probably will. If interest rates rise slowly and continuously, they will suck wind out of the sails of appreciation and slow down price increases.

Massive borrowing (if you increase the supply of bonds, you raise the interest rate necessary to make a sale of them) could push up interest rates. Higher US gov debt = more US gov bonds issued = higher interest on each US gov bond = higher interest rate on each mortgage bond = higher interest rate on each mortgage. This alongside the fed dumping bonds they accumulated during the financial collapse could push bond yields and, as a consequence, mortgage rates very quickly. This kind of quantitative unwinding has never happened before and the effects will be determined by what buyers demand when the supply of US bonds on the market skyrockets.
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Old 02-20-2018, 10:51 PM
 
Location: Huntington Beach, CA
86 posts, read 73,729 times
Reputation: 144
https://www.ocregister.com/2018/02/0...-hard-to-find/

"17% of homes were purchased with adjustable rate mortgages."
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Old 02-20-2018, 10:59 PM
 
Location: Riverside Ca
22,146 posts, read 33,215,981 times
Reputation: 35433
Quote:
Originally Posted by iExtrapolate View Post
My point is that the interest rate affects the monthly payment.

The monthly payment on a 770k house at 3.5% interest rate is the same as the monthly payment on a 550k house at a 7% interest rate.

For a 700k house, the monthly payment for 20% down and a 3.5% interest rate is 3200/month. At a 7.0% interest rate the payment would be 4400/month.

The concern is that, given a fixed price, an increase in interest rate from recent numbers to more normal rates would cause a big increase in the required monthly payment.

You’re not stating anything that’s unknown. Everyone at some point hits a financial or affordability ceilings. We al have one. Regardless of how much money you have. Eventually if you want to sell or buy someone has to give in. Otherwise the market slows to a stop. Buyers can only borrow so much. Sellers can ask however much they want if they overprice nobody will buy.

Right now we haven’t hit a affordability ceiling. 4/4.5/5% rates are still low rates.
Eventually we will hit a ceiling but we’re not there yet imo. Part of the reason is simply because the housing demand today isn’t made up and it isn’t a bubble. In order to have a bubble you need overmanufacturing and overborrowing to buy the ample housing. There simply isn’t enough housing to meet the demand today. We had 5-6 years of practically no home building and the existing housing that was there was getting bought with no supply to replenish the tank. Also remember that older people aren’t moving and while some may be downsizing some aren’t which puts pressure on home s as less supply from the nonsellers and added competition from sellers who sold and are downsizing. And all those 16-25 year olds (that were young kids in the bubble) are graduating or graduated started careers and now are hone shopping to raise families. Truthfully the way you slow demand is by overpricing thus only certain few can buy and allowing the supply to catch up

The real issue is that construction costs remain the same wether you’re building a 3000 sq ft monstrosity or three 1000 sq ft mini mouse house. Buying the land, permits, materials and labor costs are the same. A piece of 2x4 lumber doesn’t care if it’s br8ng used fir a mansion or a small house. It’s gonna cost x amount

Here is what I can tell you. EVERYONE needs shelter. Regardless of what happens with rates.
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Old 02-21-2018, 05:58 AM
 
Location: Huntington Beach, CA
86 posts, read 73,729 times
Reputation: 144
Construction costs are higher for a 3000 sqft house than a 1000 sqft house. More materials and man hours are required to build it. I'm not sure why you would think that isn't the case.

Yes, the kids are now shopping for homes (I am one such "kid"), but most don't have $150k in the bank and a 120k+/year job. I see that the fact that I can afford to as a somewhat unique situation. The reality is that any home purchase is going to require a stretch and if the price moves out of reach, they can't buy it no matter how much they'd like to. In fact, most millennials can't buy a house in Orange County at any interest rate.
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Old 02-21-2018, 07:23 AM
 
Location: Riverside Ca
22,146 posts, read 33,215,981 times
Reputation: 35433
Quote:
Originally Posted by iExtrapolate View Post
Construction costs are higher for a 3000 sqft house than a 1000 sqft house. More materials and man hours are required to build it. I'm not sure why you would think that isn't the case.

Yes, the kids are now shopping for homes (I am one such "kid"), but most don't have $150k in the bank and a 120k+/year job. I see that the fact that I can afford to as a somewhat unique situation. The reality is that any home purchase is going to require a stretch and if the price moves out of reach, they can't buy it no matter how much they'd like to. In fact, most millennials can't buy a house in Orange County at any interest rate.
Basic start up construction costs are the same wether you’re building a monster or a small house. You didn’t actually understand what I wrote not do you understand how construction costs work or add up. The example I gave you was using square footage which is what is used to figure costs. To build equivalent square footage 3000 sq ft single house or three smaller 1000 sq ft houses the costs are the same to a builder. In fact building three smaller homes can be a higher cost than one big home.
Subcontractors charge a minimum also regardless of the work. A drywall guy charges x amount because his labor costs for the day are the same. He doesn’t care if hes putting up 800 sa ft of drywall of 1500. Because his crew is gonna cost the same either way. When I subbed I charged 8 hours regardless of I worked it or not

Do you understand that REGARDLESS of the size of the house start up costs in California to build a new house runs at about 100,000 dollars. I have a friend who built a small tract in Fontana. Those were his start up. For each house and the size wasn’t part of the equation. That’s why houses are so expensive out here. You think getting a architect and designer ,preplanning qnd getting the approval to build in a neighborhood and bringing in utilities and permits are cheap on new construction? You don’t just buy a piece of land and then just start building. Hell
Acquisition costs of the land alone can be millions. No builder is going to build small houses UNLESS the trend to build small houses is what’s going on. And they sure as helll aren’t gonna waste their time buying some postage stamp lot and develop one 1000 sq ft home on it. The only builders who do that one lot onenhoise are custom
Home builders and they aren’t cheap homes. start ups are the same because the city and state dictates ththat costs. And builders are looking to make money so they build the maximum they can

If you can’t afford to buy in a certain area then that just means that area is too expensive for you and you probably shouldn’t be buying there anyway. There is no right to buy where you want to live. But I call bs on not being able to buy in OC. Two millenials making 70k a year each can buy a house in OC. Sure it’s not gonna be a beach front cottage but there are still townhouses and small homes that can be bought in their income level. It’s just not going to be in Laguna overlooking the ocean. It may require not going out and buying the latest and greatest laptop and iPhone and driving a used Honda rather than a new 3 series. I have a friend who is a millennial. He has a nice 65k truck truck to pull his 120k 5th wheel and 40k boat or jet skis or quads. His choice is to be a renter and have toys. All those toys run him about 2200 a month. In payments

Just as a FYI we bought a new house two years ago. We saved for 10 years to get in that position. I could of leveraged properties and played Monopoly but I wanted to be in a certain financial level before I did buy.

Last edited by Electrician4you; 02-21-2018 at 07:35 AM..
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Old 02-22-2018, 05:46 PM
 
Location: California
1,424 posts, read 1,627,915 times
Reputation: 3144
As rates go up, nobody on a fixed mortgage would sell unless they really have to. We already have extremely low turnover. Why would anyone sell and cancel a loan at 3.5% 30 year fixed to borrow at 5%?

If anything, I might buy a government treasury that pays me more than my mortgage rate!! Can you imagine having a risk-free US government bond that has a higher interest than your mortgage? That is also exempt from local taxes, while your mortgage is deductible? That would be amazing.

There are absolutely people buying with ARMs, but as you pointed out they are only 17% of new purchases. Even if 20% of them default (which is insanely high, way above 2008), you are still talking 4% of houses that will go in foreclosure. And that will obviously not happen at the same time.

So to answer your question, rising interest rates, by themselves, will not crash the market in my view. They will likely limit the pace of increase or even cause flat lining, but without a recession, I don’t see market correcting meaningfully. And if it does, you better be quick, because there are a lot of people waiting on the sidelines to buy with cash.
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Old 02-22-2018, 06:42 PM
 
18,172 posts, read 16,244,026 times
Reputation: 9325
Quote:
Originally Posted by Electrician4you View Post
You’re not stating anything that’s unknown. Everyone at some point hits a financial or affordability ceilings. We al have one. Regardless of how much money you have. Eventually if you want to sell or buy someone has to give in. Otherwise the market slows to a stop. Buyers can only borrow so much. Sellers can ask however much they want if they overprice nobody will buy.

Right now we haven’t hit a affordability ceiling. 4/4.5/5% rates are still low rates.
Eventually we will hit a ceiling but we’re not there yet imo. Part of the reason is simply because the housing demand today isn’t made up and it isn’t a bubble. In order to have a bubble you need overmanufacturing and overborrowing to buy the ample housing. There simply isn’t enough housing to meet the demand today. We had 5-6 years of practically no home building and the existing housing that was there was getting bought with no supply to replenish the tank. Also remember that older people aren’t moving and while some may be downsizing some aren’t which puts pressure on home s as less supply from the nonsellers and added competition from sellers who sold and are downsizing. And all those 16-25 year olds (that were young kids in the bubble) are graduating or graduated started careers and now are hone shopping to raise families. Truthfully the way you slow demand is by overpricing thus only certain few can buy and allowing the supply to catch up
The banks have a hand in this as well. Foreclosures are not brought on the market in the volume they exist at. The banks hold houses off the market to drive prices up. An employee was foreclosed 5 years ago, still lives in the house and pays nothing. The bank does not object as he keeps the house and yard in good shape. They will make more now than if they pushed him out when foreclosed.
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Old 02-22-2018, 10:58 PM
 
Location: Riverside Ca
22,146 posts, read 33,215,981 times
Reputation: 35433
Quote:
Originally Posted by HappyinCali View Post
As rates go up, nobody on a fixed mortgage would sell unless they really have to. We already have extremely low turnover. Why would anyone sell and cancel a loan at 3.5% 30 year fixed to borrow at 5%?

If anything, I might buy a government treasury that pays me more than my mortgage rate!! Can you imagine having a risk-free US government bond that has a higher interest than your mortgage? That is also exempt from local taxes, while your mortgage is deductible? That would be amazing.

There are absolutely people buying with ARMs, but as you pointed out they are only 17% of new purchases. Even if 20% of them default (which is insanely high, way above 2008), you are still talking 4% of houses that will go in foreclosure. And that will obviously not happen at the same time.

So to answer your question, rising interest rates, by themselves, will not crash the market in my view. They will likely limit the pace of increase or even cause flat lining, but without a recession, I don’t see market correcting meaningfully. And if it does, you better be quick, because there are a lot of people waiting on the sidelines to buy with cash.

Exactly. Thatsxthe boat I’m in. Why would I sell? To do what buy a bigger house a higher property tax and a higher loan rate? No thanks.

Also... jobs. We’re going into a boom and the jobs are out there. And that’s making people start making noise and jumping in the House market.


Quote:
Originally Posted by expatCA View Post
The banks have a hand in this as well. Foreclosures are not brought on the market in the volume they exist at. The banks hold houses off the market to drive prices up. An employee was foreclosed 5 years ago, still lives in the house and pays nothing. The bank does not object as he keeps the house and yard in good shape. They will make more now than if they pushed him out when foreclosed.
Wait... is this today? Because banks would be retarded to keep a house off the market today. But yes 08-11/12 banks changed the orclosure rules to keep housing off the market and completely flooding the market. It was already bad. Throwing more houses out in the market would of just further depressed prices. Personally I was hoping they would do it. It would of been a great buying opportunity
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