Effect of rising interest rates on California housing prices (Fontana: sale, foreclosures)

[Electrician4you]

Originally Posted by iExtrapolate

You say that people adjust. That is true. However, there is a limit to how much they can adjust. For example, if interest rates were 20% could the average family find a way to buy a $750k house? of course not! Nor could they at 7% either!

What I mean to say is that, while it is clear that an increase in interest rate from 4.0 to 4.2% will not crash housing prices, it is clear that there is some interest rate that will. So, if we are looking at this quantitatively, what interest rate would this be that would cause "sellers to drop the prices"?

That's the question. There is a number where buyers cannot adjust and, given how stretched the typical buyer is, I don't think the increase necessary to decrease housing prices is unattainable.

Come on man. Nobody is going to be borrowing 750k at 20%. well I guess they can but wages would need to support it. If the rates are too high nobody will borrow and people will simply not buy. Yeah if rates go to the stratosphere nobody will be buying. It’s pretty obvious that at some point everyone hits a affordability ceiling. Mine is higher than another guys and mine may be sooner than some other guys. That family would be able to buy at 7%. Sure it may require not having a 50k car payment or no more 3 yearly vacations to Cabo, or getting rid of the 28 foot cabin cruiser but it’s doable.
In 03-07 the loan rates were in the 7% range. I remember I locked in a 4.25 and that was incredibly low.

Another thing is that a lot of people are going to be locked in their loan. For example I’m bought almost two years ago, borrowing at 3.5% 30 year. That’s peanuts for the amount of money borrowed. In 15 years the payment I’m making and the interest I’m paying is laughably low. Hell it already is laughably low. And I’m paying extra jus5 to kill the loan faster. Rates are a full percentage higher and to rent the same place now I would be paying 2-300 a month more. There will be absolutely no reason for me to sell. I dint want to work out of state.

As for the what interest rate makes the seller drop their price is subjective and objective. For someone like me the rate wouldn’t matter as I don’t need to sell. But depends on how badly the seller needs to sell, their loan balance, the market, the economy, loss of job etc. there are many reasons people sell. The interest rate only makes a difference in the amount of buyers you get looking.

The problem with raising interest rates to lower housing prices is very convoluted. And there is more to the interest rate than home loans. First of all it takes sellers a long time to realize and then lower the price to their house. Partly pride and angst for waiting too long missing the boat etc. So it’s a long time to get prices down.
As rates go up the buyer pool gets smaller and smaller. The supply of houses gets bigger and that’s how a market changes from a sellers to a buyers market. That’s usually a long time coming too. The only time it’s a issue is when the market is flooded (bubble pop). I guarantee you that the bubble pop house decimation will never happen again the way it did. If there is a next time you will not see a flooded market. Banks will keep the houses and investors will dive right in.

Either way everyone has a affordability ceiling they hit when purchasing a item wether it’s a table saw a car or a house

[CA4Now]

Originally Posted by Electrician4you

Come on man. Nobody is going to be borrowing 750k at 20%. well I guess they can but wages would need to support it. If the rates are too high nobody will borrow and people will simply not buy.

Although people were buying houses with nearly 18% interest rates back in the early 1980s. Sounds unbelievable today.

[American Expat]

I don't see how it can do anything except depress prices especially in the higher cost areas. I wonder what % of loans are fixed versus variable?

[Electrician4you]

Originally Posted by CA4Now

Although people were buying houses with nearly 18% interest rates back in the early 1980s. Sounds unbelievable today.

Sure, but houses weren’t 750,000 dollars either. It’s really all relative. People say I got lucky when I bought my first house in 92/93. Yeah ok if you’re looking at whart houses cost today vs what I paid I got “lucky”. Although I was driving a already 22 year old Chevy truck that I don’t think has one body panel that wasn’t dented, should of bought stock in Ramen noodles as I was their number one customer, and my choice supermarket was the 99 cent store. But I couldn’t rent anymore. I hated writing that check every month. My house payment locked in my basic shelter costs for 30 years.

[Electrician4you]

Originally Posted by American Expat

I don't see how it can do anything except depress prices especially in the higher cost areas. I wonder what % of loans are fixed versus variable?

I bet they went back to pushing a 20 down and 30 year. Which was the most stable loan type for a long time. Once they went to hocus locus orvguess th3 interest rate 3-5 years from now loans that’s when the housing market went from a steady small steps type to a speculative market which we have today.
People are simply using their home equity to hammer down and move up.

I would guess 80/20 or 90/10 conventional to variable

[Frihed89]

Originally Posted by iExtrapolate

I understand that the relationship is not one-to-one, but there clearly is a relationship between house prices and interest rates and there clearly is an interest rate number that would cause house prices to fall. Does anyone have a good idea as to what this would be?

A house is an asset. As interest rates rise, asset values fall.

[iExtrapolate]

https://www.cnbc.com/2018/02/08/kevi...uy-a-home.html

Kevin O'leary: "Let's say you buy a house for $200,000 and you think 'Oh, gee next year it is going to be worth $250,000!' That might have been true 10 years ago, but I don't think it is going to be true next year, or the year after that, because when rates start going up, and money costs more, and mortgage rates are higher every month, the value of real estate goes flat. Or, often goes down,"

[American Expat]

Originally Posted by Electrician4you

I bet they went back to pushing a 20 down and 30 year. Which was the most stable loan type for a long time. Once they went to hocus locus orvguess th3 interest rate 3-5 years from now loans that’s when the housing market went from a steady small steps type to a speculative market which we have today.
People are simply using their home equity to hammer down and move up.

I would guess 80/20 or 90/10 conventional to variable

I hope you're right, if so, shouldn't be a problem for those that have their house and mortgage.

[CA4Now]

Originally Posted by Electrician4you

Sure, but houses weren’t 750,000 dollars either. It’s really all relative.

Yes, it is relative: people's salaries, electric bills, grocery expenditures, etc, were also far less than what they are today. Those interest rates were astronomical. Let's hope they never reach that level again.

[payutenyodagimas]

most people don't look at the interest rates when buying a house or a car. they look at the monthly payment versus take home pay. only finance professionals look at how much they pay in total interest and compare it with other form of investments.


affordability and optimism will always be the key.


even now when interest is low, people are still complaining that they cant afford to buy because houses are just too expensive.