Mortgage rates up; will house prices be coming down?

[KCfromNC]

Originally Posted by rory breaker

It was reported recently that home prices are expected to bottom out this year Q4 and return to "peak" levels by 2013...much much faster than most areas in the country.

Keep in mind though..."bottom out" is a term used loosely here. The triangle never saw the boom the rest of the country did, it was pretty much steady single digit growth YOY...the decline should be similar if it exists at all (knock on wood).

If you mean triangle as in RTP, North Carolina, the drop we've seen back to 2005/2006 prices has been a bit steeper than the run up. Since demand is still pretty low, expect prices to continue dropping.

[evilnewbie]

Originally Posted by MikeJaquish

IF a homeowner was willing to reduce price to reflect an interest rate increase, the reduction of price should not be assumed to be equal to the total projected amount of interest over 30 years.

The price reduction should be assumed to be equivalent to the amount of principal that would yield that amortized total. To yield $45000 over 30 years does not require $45000 in price.

And it may be reasonable to take into account the projected hedge against inflation that a homeowner realizes by pegging a loan to a current rate, and buying a home that is expected to increase in value over 30 years.

Actually I did a reverse amortization for 45k in interest alone and it meant the seller would have to sell more than just 45k in loss... so actually if you talk about the interest in principal (at 5% interest) over 30 years, it would take MORE than 45k principal to get 45k in interest alone... looking at typical savings interest rates hovering around 1-2%, it would take even more principal... so actually, I was being very kind to say only 45k loss to the seller...

[evilnewbie]

Originally Posted by mcm2010

That's seriously over reaching.
Most average home buyers are only concerned with what their monthly payments are, not so much as how much they will or will not shell out in interest over the life of the loan.

So the average home buyer isn't too bright and that justifies continued idiocy? Okay...

[MikeJaquish]

Originally Posted by evilnewbie

Actually I did a reverse amortization for 45k in interest alone and it meant the seller would have to sell more than just 45k in loss... so actually if you talk about the interest in principal (at 5% interest) over 30 years, it would take MORE than 45k principal to get 45k in interest alone... looking at typical savings interest rates hovering around 1-2%, it would take even more principal... so actually, I was being very kind to say only 45k loss to the seller...

Still oversimplified to the point of inapplicable.

1. Few people amortize over the 30 years you need for your example. I am on my 7th home loan, and nowhere near 200 years old.

2. It seems that you are mingling cash with leverage to make your point. If I reduce my price $45,000, and that saves the buyer interest, how does it follow that the buyer can put $45000 he doesn't have (would have leveraged and paid interest on) to work in the bank?

If a buyer borrows $200,000 @ 6% for 30 years, he will pay back about $432,000.
If he borrows $180,000 @ 6% and pays for 30 years, he will pay back about $388,800.
At 20% down, the price is $250,000 in the first example and $225,000 in the second example. The $25,000 price reduction yields a $43,200 savings to the Buyer over the 30 years.

[mcm2010]

So the average home buyer isn't too bright and that justifies continued idiocy? Okay...

The average home buyer is NOT a speculator.

Buyers were paying higher home prices AND higher interest rates during the past 8 or so years.

Do you seriously think because interest rates jump 1% prices will need to come down, what was said...another 23% in the scenario that was given? That same logic would imply that if interest rates went up 4% that home would be free.

Please pass me some of your Kool-aid.

[bigfatturkey]

i do believe prices will fall a little...

i was just about to make an offer (was waiting for a more favorable exchange rate and for my $ to get transferred from my home country) but someone beat me to it just yesterday...darn!

anyway, i consoled myself that perhaps it's not meant to be and that i should wait a little longer. with increasing interest rates and possibly a reduction in housing prices....i think i'd be in a good position to buy with cash.