Mortgage rates surge above 4% (make money, invest, inflation, rich)

[beb0p]

Originally Posted by C2BP

No that is NOT the only impact. There is another impact that you all are afaid off and that is LOWER HOUSING PRICES. But, our fellow Americans need lower housing prices our consumer based economy needs lower rents and lower housing prices so that our consumers can keep some of that hard earned money and save it or spend it on goods and services to support our economy.

Housing prices today are overinflated in some areas of the country by 50%-70% becuase of ZIRP and Fed's manipulations. ZIRP invited more speculators this time around then during our first housing bubble. Mom and Pop speculators from the first housing bubble were just replaced with professional speculators, Wall Street Crooks and Hedge Funds who bought entire neighborhoods in speculator driven markets like Phoenix, Las Vegas and etc. We are in a massive bubble and when this bubble implodes you won't see those crazy valuations in your life time again. The Fed won't be able to pump and inflate housing bubble #3 again. Many Americans will be left holding the bagg and end up poor for the rest of their life.

Higher interest rates will whipe out all phony paper valuations and gains from housing and will bring housing prices back to earth so that our fellow Americans can afford to buy a house again in their own country and not take massive amount of mortgage debt and be debt slaves for the rest of their lives.

You are forgetting inflation.

If inflation raises as many analysts are expecting, then it can potentially cancels out the raising interest rates, making house buying just as attractive as before.

For the last few years, 30-yr fixed mortgage rate is around 3.5%. Our inflation was around 1.6% for the last two years. Meaning the real interest rates is around 1.9% (3.5% -1.6% =1.9%).

If mortgage rate goes to 4.5%, and inflation goes to 2.6%, the real interest rate is still 1.9%. Meaning it is still similar to today.

Now, Trump's policy of protectionism has the potential to drive both inflation and interest rates to the moon. Those are the two things you have to keep your eyes on. If interest rates raise but inflation stalls or goes up slowly, yes it can kill the housing market. But if inflation shoots pass interest rate, watch out. The Feds will be very happy if both move up at around the same rate.
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[mathjak107]

homes do not always track inflation while inflation is happening . when rates got sky high in the 1970's and 1980's home prices fell . it was after rates started falling and inflation started to come down that home prices first recovered to move on .

same happened with stocks . while stocks have a reputation for keeping up with inflation they too did not gain ground until after inflation started to fall .

there is kind of this delay in things once rates and inflation start passing certain points .

as far as any kind of normal tracking , you can see more often than not it is more a supply and demand as well as local economy issue than any inflation or rate issues determining home prices .

[Perma Bear]

Originally Posted by mathjak107

homes do not always track inflation while inflation is happening . when rates got sky high in the 1970's and 1980's home prices fell . it was after rates started falling and inflation started to come down that home prices first recovered to move on .

same happened with stocks . while stocks have a reputation for keeping up with inflation they too did not gain ground until after inflation started to fall .

there is kind of this delay in things once rates and inflation start passing certain points .

as far as any kind of normal tracking , you can see more often than not it is more a supply and demand as well as local economy issue than any inflation or rate issues determining home prices .

What about mean reversion? Looks pretty bubbly as it is.

[Pub-911]

Home mortgage rates declined sharply between 2000 and 2003. They steadily increased between 2004 and 2006. Follow the bouncing ball. Case-Shiller is meanwhile not a high quality index, but it will suffice for simple purposes.

[mathjak107]

they did not increase steadily from 2004-to 2007 , we had the famous inverted yield curve where the fed raised short term rates and bond investors bid rates down in 2007 .


30 year fha rates

2004 started at 5.74 and ended at 5.75

2005 started at 5.71 , ended at 6.27

2006 started at 6.14 and ended at 6.14

2007 at 6.22 and ended at 6.10

we saw a range that started at 5.74 in 2004 and ended at 6.10 in 2007 . that is all of .36% increase over 4 years

[Pub-911]

National average home mortgage rates were at 5.38% in March 2004 and 6.80% in July of 2006. This of course coincided rather closely with a long series of quarter-point increases in federal funds rate targets.

[mathjak107]

according to the fha rates 2005 was lower than 2004 at the start . 2006 ended lower than 2005 . i would not call that a steady increase from 2004 to 2006 . there really was not a whole lot of change going on .

we had the inverted yield curve start in 2005 and it went right through 2006 into the recession . . the fed was raising short term rates and bond investors did not agree . short term rates were higher than long term rates . 2005 was the first inverted yield curve in 5 years .

in 2006 the 2 yr was 4.66% the ten year a mere 4.57% . while the feds fund rate took a nice jump bonds and mortgages did not .

[Pub-911]

Up 142 basis points in 28 months. Not as impressive as the roughly 335 basis point drop between mid-2000 and mid-2003, but still quite a substantial increase. Enough to cause housing markets to peak and head downward for the first time since the S&L crisis in some places and since the Great Depression in others.

[mathjak107]

the long treasury bond moves more than that in one afternoon's trading .

the fact is for 35 years except for some speed bumps rates only went down . we never really had an uptrend in rates in my investing lifetime which is 30 years .

no one knows if this is the real flip up the last 3 months or just another speed bump and we are headed even lower . .

[ShampooBanana]

Originally Posted by C2BP

You are NOT lucky at all, you actually made a huge financial mistake and financial suicide. You took a low interest rates mortgage on overpriced house in speculative market = Phoenix. When interest rates go up your house value is going to deflate.

Why would you take a mortgage @ 3.25% for 30 years when you know that interest rates can't go any lower and are actually going higher??????????????? When buying a house the goal is to lock LOW PURCHASING PRICE and not low interest rate. It is better to buy a house when interest rates are higher then when interest rates are low. You will secure low purchasing price because when interest rates are high purchasing price is lower. Then when interest rates are lowered again you finance and lower your payment + gain some home equity. You did everything wrong, you were lured by low interest rates and you signed a mortgage for overinflated and overpriced house.

Lower interest rates = higher housing prices
Higher interest rates = lower housing prices.

Good Luck to you friend, you will need it in next few years!!!!

I find this hilarious. First, I'm about as aware of the idiosyncracies of the Phoenix market as anyone out there. I do real estate market analysis for a living, specifically focused on Phoenix and Tucson. Believe me in that I did my research before buying my current home. Not only that, just because Phoenix has the reputation of being subject to wild economic swings, there is still significant variation in that depending on what areas of Phoenix you are considering. Surprise or Maricopa are going to be affected much greatly than, say central Scottsdale or Tempe, and that's based on location within the metro, proximity to large, stable employment bases, school quality, demographics, price sensitivity of the buyers, variety of housing stock, and prestige of those submarkets.

First, the home I bought is located central to almost anywhere in the Valley in a great neighborhood with great schools, and backs to a rather nice golf course. It was dramatically undervalued and I bought it for $42k UNDER appraisal. Another home just like it recently sold for $35k more than what I paid just down the street and was much less updated. I have a cushion there already.

Second, you are assuming I bought this home purely as an investment. No, it was bought to be my primary residence first and foremost, and as an investment second. What happens in the next few years is irrelevant to me except for the fact I have a lower house payment due to my lower interest rate than I would otherwise. If I choose to stay in this home over the life of the mortgage (not likely but possible), I would be savings tens of thousand of dollars in interest payments over the life of the loan, assuming I don't pay it off sooner. You assert that higher interest rates have a major effect on home prices. Well I assert that they don't have as big of an impact as you might think. I think Mathjak already did a good job as showing that. Besides, the Fed is only going to raise interest rates very slowly, perhaps 25 basis points at a time, over the course of the next few years, if at all. However, based on what Trump is saying early on, this would likely coincide with an easing of financial regulations and lending standards (talking about repealing Dodd-Frank, etc). That would likely counteract any stifling effect that a minor interest rate rise would have.

Third, you assume that Phoenix is overinflated without any evidence to back it up. I think that is categorically wrong. Phoenix home prices are still 30% below what they were at the pre-recession peak, now nearly 10 years later. If you looked at a historical average home price appreciation line on a graph starting at the median home price in 2002 (before the wild run-up to the crash), you would see that Phoenix now is almost even with that line (which also does not account for inflation since that time). It shows that Phoenix median home prices are almost on par with that line, so are tracking the normal historical trend. John Burns Real Estate Consulting categorizes Phoenix as a "Warm" market still on the affordable end fo the spectrum as compared to Nationwide and other Southwest Region home markets. It is rated an A+ for all supply indicators. Favorable demographic changes (i.e. Millennials reaching home buying/family starting age) and reasonable job growth combined with increasingly limited land supply in the greater Phoenix market overall means that conditions are very favorable for an increase in home values over the next several years - ESPECIALLY in well located submarkets (such as where my home is located).

Finally, again you are placing too much weight on interest rates as a barometer or determinant of home prices. Supply/demand fundamentals are far more important. Those are basically a function of:

a) availability of land and land prices which allows for new homes to be built, which drives - land is becoming increasingly scarce and more expensive in desirable locations around Phoenix, which is pushing many builders to more distant markets like Buckeye, Maricopa, San Tan Valley and far northwest Surprise/Peoria once again. New home supply in more central locations is commanding premium prices and is and will continue to push up resale prices in those areas
b) permit growth (this takes into account both multi-family and single-family) - this has been increasing dramatically since 2011 but is starting to level off some and projected to basically remain steady past 2018. Phoenix historically supported an average of 30k annual permits. This year is projected to have ~17k total permits issued - still well below the norm. Note that population growth in the Phoenix metro averages around 100k residents, or ~40k households. Those people have to live somewhere.
c) employment, ie.e job growth - Phoenix grew by ~45k jobs year over year in October, the most recent year for which data is available. Job growth is projected to be strong for the next several years.
d) household demographics - as I mentioned before, Millennials are just starting to reach the point where many of them are starting families and buying homes. They are a larger demographic sector than even the Baby Boomers. This is going to create huge housing demand over the next decade or two, especially as Baby Boomers finally start to retire and finally allow an opportunity for many Millennials to move up in their careers (make more money = more money to save and spend on housing).

Another factor equally if not more important than interest rates, as well, is ease of qualification/lending standards. Those are already starting to loosen some and will likely loosen even more. It remains to be seen if this will be a good thing long term, but short term it should allow more people to qualify and buy homes even if interest rates start to tick up. Wage growth is again starting to increase some as the labor market has become tighter, which will only hasten the ability for more people to buy homes. And last but not least, rental rates have been increasing at increasing levels in many markets across the US, reaching historical highs in many. That is only going to help push more people towards buying if they can muster up the savings as mortgage payments become more affordable relative to renting.

To sum up, I have a huge number of data sources at my disposal on the overall economy and local real estate markets which I monitor on a daily basis. I'm pretty confident in my local market, but if I see signs that that is changing I'll probable be among the first to sell as long as I believe the time is right for me and my family. So yeah, I don't believe for a second that I made a "huge financial mistake" and am sleeping just fine at night, thank-you!