Sinking real estate market for 15 years? (6%, Phoenix, bill, sell)
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Will rising interest rates cause house prices to crash?
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The math is inescapable. Problem is, interest rates can’t stay low forever. Eventually they’ll have to rise, which could very well drive home prices down since the cost of taking out a mortgage becomes more expensive. The fed will defend ultra low rates until it can’t, which means at a certain point, the incremental cost of debt capital is going to destroy $billions in equity values going forward.
When interest rates go up, affordability for the buyer will go down because a larger percent of the mortgage payment will go towards interest.
It doesn't necessarily mean there will be a crash in housing prices. If you are planning on staying put, then it doesn't matter which way rates go. And that's probably part of the reason for continuation of ZIRP through 2015. To give a large swath of a population the chance to settle into a low rate mortgage, to let all those ARMs reset at 2.5-3.5% rates and then allow homeowners time to sell or refi, and to allow underwater homes to get close enough to par.
Likewise, even if rates rise, if they rise into strength (improving economy, rising wages and low core inflation) it shouldn't be a drag on the economy. If we return to 4,5,6+% GDP growth it won't matter that rates are higher. There will be plenty of well qualified buyers and homes will be appreciating despite higher rates.
I don't see that scenario personally, but it would be dumb to rule it out either as who would think we'd be where we are in 2012 back in 2009. I certainly didn't.
The thing everyone should be more afraid of is home ownership becoming a multi-generational affair; something that happens only when your elders pass.
We in the US use our tax code as a way to incentivize certain behaviors (for the most part anyway). It seems clear the deductions and credits in place to promote ownership will be capped or eliminated over the next decade one way or the other. Once all the tax incentives of homeownership end, that could fundamentally change when and why people buy homes.
And even once the market adjusts, I'm afraid homes will be the family jewels, kept in the house because junior with his law degree would never be able to afford paying his taxes, for his education and health care, and yet be expected to start a family and move right into that American Dream 4-5 bdr SFH in the good school district on the nice plot with 2500+ sq ft.
Just a hunch - the typical first time home buyer of 2020+ will be a lot like a European newlywed. They will have returned to live with Mom + Dad after higher education until they get married, saving money so once they are married, both partners can afford to go buy their first place with a large cash down payment. And the first house will just be the place they own and later rent out while they wait for parents to pass down the SFH to them.
Most countries do not allow mortgage interest deductions and many ejoy similar or better rates of ownership than the U.S. If and when such a deduction is eliminated or the cap reduced, there is going to be a transition. I think it very unlikely we are going to see this, during the current administration unless we go the Simpson-Bowels route.
Multi-generational homes are far more common elsewhere. Young adults live at home longer and mom and pop don't go off into active adult communities or retirement homes.
At least 50% of all mortgage’d homeowners coast to coast are Zombies…dead to the housing market equation — unable to freely sell and rebuy – due to negative equity; “effective” negative equity (not enough equity to pay a Realtor 5% and put 10% to 20% down on a new house); or insufficient income or credit needed for a mortgage;
The mainstream media in its shallow or non-existent research likes to report the underwater numbers from Zillow as if that accurately captures the number of households that are effectively underwater. It doesn’t. In the real world, sellers need to pay an agent and closing costs that usually run about 8% of the final negotiated sales price. Therefore, anyone with less than 8% apparent equity cannot sell their house.
Underwater Houses - Unable to sell due to the fact the house is worth less than they owe.
[b]Underwater Houses - Unable to sell due to the fact the house is worth less than they owe.
I like how they lump the whole 80-100% equity position group together as mostly zombified to pump up their view.
How is someone that owes say $160-$185K (92.5% equity position) on a $200K home not able to sell? Even those with $185-200K are not completely out of it since not everyone uses a full service realtor.
At least 50% of all mortgage’d homeowners coast to coast are Zombies…dead to the housing market equation — unable to freely sell and rebuy – due to negative equity; “effective” negative equity (not enough equity to pay a Realtor 5% and put 10% to 20% down on a new house); or insufficient income or credit needed for a mortgage;
Underwater Houses - Unable to sell due to the fact the house is worth less than they owe.
As the other poster said, these #'s are overstating the problem. Most of the people in the black group, and some in the negative equity groups have the ability to sell. The other issue is most recent buyers that used FHA loans or put up to 20% down are in the black group - but they aren't likely to try and sell their home any time soon. The remainder of "trapped" borrowers aren't evenly distributed at all. Some neighborhoods and markets have an abundance of these loans, while others have too little for it to be a significant impediment to turnover.
It is a good thing to acknowledge when something you post is, word for word, someone else work. Posting "link" is not the same as acknowledging the author.
I also just realized that these numbers do not even include the 30% of home owners that do not have a mortgage, this really makes what was posted look like there was no real research done and completely invalidates it if you ask me.
This thread just seems like major fail. I didn't read all 13 pages but I read a couple and it seems like the OP just keeps coming back over and over again with a new theory as to why the market will decline after his last one doesn't pan out. Eventually one of them will be right(because the housing market is cyclical, after all) and he'll claim victory.
What I post "is" happening. While it may not be happening in your "local" market, it is happening, right now. It's not doom and gloom, its reality. No I don't think the real estate market is not going to go to crash but there are factors that will continue to drive prices in one direction or another.
Ignore me if you like, be ignorant of changes to the business, but that won't change what is happening. There is no, hey "I was right" moment. Each piece of news affects the market in some way.
Last edited by 399083453; 04-17-2013 at 11:05 AM..
What I post "is" happening. While it may not be happening in your "local" market, it is happening, right now. It's not doom and gloom, its reality. No I don't think the real estate market is not going to go to crash but there are factors that will continue to drive prices in one direction or another.
Ignore me if you like, be ignorant of changes to the business, but that won't change what is happening.
The initial idea was that the real estate market would decline for 15 years, right? That was two years ago. Sure certain markets may have declined but as a whole the housing market is very healthy right now. Another post talked about the mortgage deduction going away. Neither of these things came to fruition. Eventually the market will decline, it's the natural cycle. That's one thing we can agree on.
What I post "is" happening. While it may not be happening in your "local" market, it is happening, right now. It's not doom and gloom, its reality. No I don't think the real estate market is not going to go to crash but there are factors that will continue to drive prices in one direction or another.
Ignore me if you like, be ignorant of changes to the business, but that won't change what is happening. There is no, hey "I was right" moment. Each piece of news affects the market in some way.
The numbers in your most recent post were completely untrue so if you are coming up with your "what is happening" based on those numbers then you need to reanalyze.
I don't see how you can accuse others of being ignorant when your own post is blatantly wrong.
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