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Since the mortgage rates have been forecasted to go up by 0.5-1.5 points by the end of the year, and they have been creeping up over the last few days, my question is, will this reduce the prices of the houses on the market?
Assuming that the higher interest rates will reduce the mortgage amount a potential buyer with fixed income could get approved for, wouldn't this reduce the number of potential buyers who could afford a house on the market selling for X dollars? To attract more buyers, wouldn't the seller be wise to bring down their asking price instead of letting the house sit on the market for longer period of time?
The media does as much if not more harm than good. Rates went up week before last and came down last week- there is serious lag time between what happens and when you hear about it. The Fed ending its MBS buying has not had a significant impact on the markets.
Let's look at what impact a 1% increase would have on payments because it will eventually happen.
$200,000 loan with a 1% increase in rate has an increase in payment of $124 per month. If this is the deal breaker you were too close to the line in the first place and probably should have been in a lower price range even at the lower rate. Your looking at about the difference between $1300 and $1425 a month with taxes and insurance.
$200,000 loan with a 1% increase in rate has an increase in payment of $124 per month. If this is the deal breaker you were too close to the line in the first place and probably should have been in a lower price range even at the lower rate. Your looking at about the difference between $1300 and $1425 a month with taxes and insurance.
You are not telling me if I just want to pay, say, $1300 instead of the increased $1425/month, how much will that reduce the loan amount (which is $200K for $1425/month). Logic dictates that if one's affordability goes down, then wouldn't that mean that prices need to go down as well to keep the supply/demand ratio?
Economics 101 says the OP is right, but there is a bit of a disconnect between interest rates and home prices. What you will probably see is listing prices remain fairly level for a while, but the actual sales prices decline. A month or two from now those sales prices become comparable sales and only then would list prices come down.
So yes, you'll see an effect, but only in the increase is a broad trend and only a couple months down the road. honestly, I expect the end of the $8,000 tax credit to have more of an immediate effect.
Also people need to keep in mind, its not that someone can or cant afford the extra $ its motivation to buy now given low rates.
$125 isnt going to make or break most peoples budgets but a 10%+/- discount on paying down dead money (interest) may be enough to motivate people to move on something they may normally not be so quick to jump on.
everything I've read suggests that it's going to get worse before it gets better. (prices will be going down and interest rates will rise more, unemployment hasn't bottomed out). It's scary out there. OTOH if you are on the buy side you can use this to your advantage. Lots of homeowners need to unload their homes right now (moving or downsizing or whatever) and are willing to take low offers as a result.
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).
You are not telling me if I just want to pay, say, $1300 instead of the increased $1425/month, how much will that reduce the loan amount (which is $200K for $1425/month). Logic dictates that if one's affordability goes down, then wouldn't that mean that prices need to go down as well to keep the supply/demand ratio?
This thread started in the Raleigh/ Durham forum so I quoted a full payment with taxes and insuerance for this area.
To keep the same payment for P&I it would take a 10% reduction in loan amount.
My original point was it is not hundreds per month so it shouldn't keep someone from buying a home at a certain price. If $125 per month is a deal breaker they were probably too close to the line of unaffordability in the first place.
The reason why rates spiked up and then came down a bit is because yields at the short end are rising as well. When the curve get smoothed out (vs it being quite wide lately) it can bring the long end yields down.
This won't go on forever, though. Once again, roadmap for interest rates (IMO):
Rates continue to trend upward into May, with a rate shock in there for a few days along the way.
Something will goose investors out of equities and back into bonds in the May-June timeframe, pushing rates back down again, for a brief while.
By October, mortgage interest rates will begin their ascent, this time, they will not break lower. Period. Higher from there on out through 2014 if I had to guess.
I will also repeat - do not make the mistake of assuming rising rates will mean home prices will free-fall. In nominal dollars, home prices will stay steady or rise a bit. In real dollars, home prices will fall as the dollar's value continues to fall.
Think about the impact of higher interest rate across the broader economy. You'll probably see continued high or higher unemployment. You'll see high or higher energy prices, food prices, and consumables. That means people simply will decide they can't afford a house, whether or not the prices is right. Not when their grocery bill goes from $100 (in 2009) to $200 a week, when their heating bill in the winter is $400-$500 whereas it was $200-$250 in years past, and gas is $4-$6 a gallon.
Buying a home now or waiting have their own challenges. Buy now, and you're going to have to worry about those higher costs, higher taxes (certainly at the state and local level, for everything from property taxes to water fees to sales tax to income tax), reduced services, and stability given the employment challenges which aren't going away.
Wait to buy a home, and you may find that your dollars have 85% (if you're lucky) of their 2009-early 2010 purchasing power, that $400,000 home in 2010 costs $390,000 in 2013 but the mortgage is at 7%.
And, even though I'd think we're out of this mess and into the next really major economic expansion by 2015, the hangover in housing can go on substantially longer.
This thread started in the Raleigh/ Durham forum so I quoted a full payment with taxes and insuerance for this area.
To keep the same payment for P&I it would take a 10% reduction in loan amount.
My original point was it is not hundreds per month so it shouldn't keep someone from buying a home at a certain price. If $125 per month is a deal breaker they were probably too close to the line of unaffordability in the first place.
Why is it that a difference of $125 a month in payments is considered a slight difference ?
Yet $125 a month raise in utility costs, real estate taxes, a car payment, a wage cut, would be considered very steep.
Yes I realize the $125 increase is a smaller percent when talking mortgage payments, but the $125 still carries a mental image when it comes out of a monthly budget.
Even using the example a different poster used where they used actual increases . The $125 per month would still be about a 9%increase in mortgage payments.
Yes , I believe a 9% increase inpayments will have a ripple effect on peoples' decisions.
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