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LOL - you just made me spit coffee... I was thinking the exact same thing reading that BS post!
Do either of you know how price, interest rates, and mortgages even correlate?
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It's like I'm going to write something to just write something - it won't make any sense, but I'll throw in a couple of "maybe"s and try to double talk why now may be the time to buy.
Seems like you're the one who wrote something just to write something. It was perfectly logically to me.
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Originally Posted by Mike1306
When interest rates rise your monthly payments would rise making what may have been affordable previously less affordable.
What was so hard to understand about that?
Exactly.
Then again, this is a forum ... we're always going to have folks in which information is spelled out and spoon fed, and yet, they still won't understand.
We were also priced out of the market and were planning on moving to Arizona. I was not able to get a job in Arizona so we stayed. Finally in December we bought a home for half what the former owners paid in 2005. We now have a beautifull 4 bed 3 bath home in a desirable part of Oxnard where we have lived all our lives. We love it and we love the fact that it had been values at one time near the $700K mark. We paid $310 for it.
Of course they are salespeople and that is their job to sell a product so just like the used car salesman they will tell you what you want to hear.
Most of my work comes from referrals and readers of my blog and not sales tactics. I never need to sell anyone on buying a house; the truth is usually people come to realtors after they know they want to purchase a house and need help navigating the landscape and the documents. For sellers, I market heavily with aggressively-priced properties. For those who don't wish to pay the realtor fees, I give them alternatives to my services and advice in how to FSBO successfully - more often than not, though, they're calling me in 30-60 days to sign the listing agreement.
I'd say that more often than not, I'm disappointing buyers and sellers alike - certainly not saying what they want to hear LOL
There is a lot of liability that comes with being a (reputable) realtor. I've broken a lot of consumer's hearts in this business for not offering my services to their cause. Often advice given at least by me, is not always what they're looking to hear - which closes off the business relationship sometimes and sometimes it makes people realize that we're not quite the salesmen that they originally thought.
This is the first time I've been able to actually point to a real life situation where the mantra was so over the top bad.
So when was advertising ever 100% truthful?
That whole perspective was pushed upon the masses by the NAR, where for them, any time is always a great time to buy.
I never bought into that either. I did buy my house last year, though ... the numbers made sense. And that in a nutshell is actually when it is a great time to buy.
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Its time people lose this saying from their memory banks. There is no such effect as "buy now or be priced out forever".
Well, sooner or later, the cycle catches up. If the prices increased like it did, it would've just been a matter of time in which incomes had to rise to match that increase. Since it didn't, then the prices had to come back down.
Oh, and before anyone gets into how the current administration is handling this situation ... how about the last administration in which banks were left unregulated and allowed an economy to be fueled by the House ATM? If the lending institutions weren't allowed to peddle the products, such as no doc, no down, negative amortization, 125% LTV, etc. ... and lend like they did to practically anyone, with no verifications and even programs in which one day out of bankruptcy, you can buy a home ... housing prices would not have skyrocketed like it did and crash like it's still doing.
As said before, what exactly about it was BS? Seems like it was a straightforward point that as rates and mortgage fees rise, affordability drops, at least until or unless sellers drop their prices in response. If the OP is considering a financed purchase, then that is something to take into account.
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Originally Posted by Narfcake
Do either of you know how price, interest rates, and mortgages even correlate?
Seems like you're the one who wrote something just to write something. It was perfectly logically to me.
Exactly.
Then again, this is a forum ... we're always going to have folks in which information is spelled out and spoon fed, and yet, they still won't understand.
It's BS because there's no meat on the bone.
Let me put it this way and maybe you'll "explain" better. In a wage stagnant, high unemployment, and commodity inflationary environment (gas and food are spiking to a frightening extent) - where does the money come from to support current prices? Suddenly, we all can afford less, but that means we'll "miss out"?
We all know more distressed properties are on the way and that the govt is going to be forced to pull back as the underwriter for the housing market. I've seen startling statistics where as much as 95% of all recent mortgages are govt backed/HUD in some form. Well over 1 in 4 existing mortgages are currently underwater. Builders in many areas are going full force... Shadow inventory... Just plain ole fashioned regular sales. There's nothing going on to stem the tide of the supply side. However, there's countless things squeezing the demand side.
So in summary... If we all can afford LESS, as The Fed loses control over the rates and they start to come up on their own - how does one take from that a concept that it only impacts the buyers?! Past history is meaningless because rates went up at the foundation, which trickles down to us. The Fed has NOT raised rates to the banks - it's not the late 70s where rates were pushed up to cool off the economy. We're still in full on ZIRP, banks are still borrowing for free. Yet, rates are creeping up... Affordability going down in this environment puts the most pressure on the sellers, who need to bring the prices down to meet the squeeze on the demand. I don't know what's so hard to understand about that?
Let me put it this way and maybe you'll "explain" better. In a wage stagnant, high unemployment, and commodity inflationary environment (gas and food are spiking to a frightening extent) - where does the money come from to support current prices? Suddenly, we all can afford less, but that means we'll "miss out"?
We all know more distressed properties are on the way and that the govt is going to be forced to pull back as the underwriter for the housing market. I've seen startling statistics where as much as 95% of all recent mortgages are govt backed/HUD in some form. Well over 1 in 4 existing mortgages are currently underwater. Builders in many areas are going full force... Shadow inventory... Just plain ole fashioned regular sales. There's nothing going on to stem the tide of the supply side. However, there's countless things squeezing the demand side.
So in summary... If we all can afford LESS, as The Fed loses control over the rates and they start to come up on their own - how does one take from that a concept that it only impacts the buyers?! Past history is meaningless because rates went up at the foundation, which trickles down to us. The Fed has NOT raised rates to the banks - it's not the late 70s where rates were pushed up to cool off the economy. We're still in full on ZIRP, banks are still borrowing for free. Yet, rates are creeping up... Affordability going down in this environment puts the most pressure on the sellers, who need to bring the prices down to meet the squeeze on the demand. I don't know what's so hard to understand about that?
I think we're losing touch on what his post actually said. The realtor that you said was BSing people simply said that higher interest rates naturally will have an affect on loanability. If you wanted him to elaborate further, you could have asked him to, but what he said wasn't BS at all. I personally would also add that although interest rate increases will put a small pinch on the amount of your loan, higher interest rates also affects sellers in that they're intrinsically-linked with sales prices in the market since buyers will determine their affordability based on their monthly payment and not an overall sales price (and of course, it's buyers that dictate the market, not sellers)
If this is something that you would have wanted to add to his comment, I'd personally think it more beneficial to debate and thoughtful conversation to simply state that and not say that he's trying to BS people.
There are simply so many things involved in the market - we really need to be reading every day to keep up with new developments and find agents and brokers and CPAs and lawyers that are in tune.
Let me put it this way and maybe you'll "explain" better. In a wage stagnant, high unemployment, and commodity inflationary environment (gas and food are spiking to a frightening extent) - where does the money come from to support current prices? Suddenly, we all can afford less, but that means we'll "miss out"?
In some areas, there's not enough money to support such prices, and it will continue to drop. In other areas, those who have a job will support the prices - but at an honest level.
This depression hasn't meant that houses that were in previously "way too expensive" areas are affordable to everyone now. However, "middle class" neighborhoods that were exorbitantly priced are dropping back to prices that can be afforded by the middle class. And ditto with the working class, etc. There will be an equilibrium ... in some areas, it's past that part now; in others, there's still years to go (in price drops) before it's reached.
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We all know more distressed properties are on the way and that the govt is going to be forced to pull back as the underwriter for the housing market. I've seen startling statistics where as much as 95% of all recent mortgages are govt backed/HUD in some form. Well over 1 in 4 existing mortgages are currently underwater. Builders in many areas are going full force... Shadow inventory... Just plain ole fashioned regular sales.
Government backed, because many private investors are still sour from the last 7 years. That in itself isn't a bad thing. However, I feel that the push of FHA loans with 3.5% down still doesn't put enough of the risk/responsibility on the buyer. If it's anything, the feds pulling out would mean there's fewer in this category.
Underwater ... those are those who bought earlier and are still keeping current. I know of quite a few people in that situation ... and despite that, they're still doing the responsible thing of paying their mortgage. They signed the note, and so they still are. It's unfortunate that part of what they're paying now was fueling someone else's lifestyle, but they're still making the same amount as they were a couple years ago, so except on paper, what's changed, really?
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There's nothing going on to stem the tide of the supply side. However, there's countless things squeezing the demand side.
The banks NOT foreclosing is holding back the supply side.
Do I approve of that, and how the feds have been addressing all of this? Not completely. Do I have a better idea to fixing it? No. It's akin to a dam holding water [the economy] back from a valley [the people] ... that is leaking. If nothing is done, the dam will break and destroy everything below. If it's patched [the Feds intervene], it'll still leak ... but not as fast. Yeah, there will still be damage, but it won't be as serious.
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Affordability going down in this environment puts the most pressure on the sellers, who need to bring the prices down to meet the squeeze on the demand. I don't know what's so hard to understand about that?
In other words, what Keeshonder wrote. "Not priced out of the market, but the price you can afford just might go down."
...... Even in areas facing elevated rates of foreclosure the vast majority of people prefer ownership to renting. Many folks facing foreclosure go to extreme lengths to avoid having to rent. I have not heard of any renter ever really planning to avoid ownership...
Definitely, I want to own a home; I do not deny that. That's why I am out there trying all the time, making my low bids, putting my realtor through heck. Soon, I hope.
I think we're losing touch on what his post actually said. The realtor that you said was BSing people simply said that higher interest rates naturally will have an affect on loanability. If you wanted him to elaborate further, you could have asked him to, but what he said wasn't BS at all. I personally would also add that although interest rate increases will put a small pinch on the amount of your loan, higher interest rates also affects sellers in that they're intrinsically-linked with sales prices in the market since buyers will determine their affordability based on their monthly payment and not an overall sales price (and of course, it's buyers that dictate the market, not sellers)
If this is something that you would have wanted to add to his comment, I'd personally think it more beneficial to debate and thoughtful conversation to simply state that and not say that he's trying to BS people.
There are simply so many things involved in the market - we really need to be reading every day to keep up with new developments and find agents and brokers and CPAs and lawyers that are in tune.
The "BS" is that the "loanability" is the only factor for what people will buy... It's your typical NAR propaganda stuff - "better hurry before you can't afford that super special house in a couple of months". It's a completely BS approach because you're discounting everything except the monthly payment - emphasis on the debt payment instead of the actual amount of debt. It's the kind of accounting that got us in this whole mess and we should be moving away from it.
So now that there's nothing left for your friendly, helpful (/sarcasm) government to do, you can no longer mask the overall amount of the debt with "low payments". You're going to be left with the cash buyers... and good luck convincing them to overpay. Losing the govt subsidized buyers (who ARE willing to overpay) is going to hurt big time - insinuating otherwise is BS IMO.
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Originally Posted by Narfcake
In some areas, there's not enough money to support such prices, and it will continue to drop. In other areas, those who have a job will support the prices - but at an honest level.
This depression hasn't meant that houses that were in previously "way too expensive" areas are affordable to everyone now. However, "middle class" neighborhoods that were exorbitantly priced are dropping back to prices that can be afforded by the middle class. And ditto with the working class, etc. There will be an equilibrium ... in some areas, it's past that part now; in others, there's still years to go (in price drops) before it's reached.
Government backed, because many private investors are still sour from the last 7 years. That in itself isn't a bad thing. However, I feel that the push of FHA loans with 3.5% down still doesn't put enough of the risk/responsibility on the buyer. If it's anything, the feds pulling out would mean there's fewer in this category.
I'm confused because on this we agree... hrm In the end, though - how's that $1mil+ market doing? Where does all that inventory fall into our class system? I don't see "middle class" gobbling those up. Heck, nobody is gobbling those up. But seriously... $729k in prime metros with 3.5% down? That's crazy.
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Underwater ... those are those who bought earlier and are still keeping current. I know of quite a few people in that situation ... and despite that, they're still doing the responsible thing of paying their mortgage. They signed the note, and so they still are. It's unfortunate that part of what they're paying now was fueling someone else's lifestyle, but they're still making the same amount as they were a couple years ago, so except on paper, what's changed, really?
I agree... If you can afford to make the payment and have solid employment, no issue. But, seriously - what happens to the folks who can't afford it? That's the question - because they are the ones who will continue to feed the supply side. Let's not pretend the BLS UE numbers you read from the MSM are acccurate. There is a very large group of people hurting.
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The banks NOT foreclosing is holding back the supply side.
Do I approve of that, and how the feds have been addressing all of this? Not completely. Do I have a better idea to fixing it? No. It's akin to a dam holding water [the economy] back from a valley [the people] ... that is leaking. If nothing is done, the dam will break and destroy everything below. If it's patched [the Feds intervene], it'll still leak ... but not as fast. Yeah, there will still be damage, but it won't be as serious.
I like the analogy, but you have to consider why the banks aren't foreclosing... and why strategic default is a very tasty option for many people. Did you see the recent decision on MERS? It's like the knock-out punch from the robosigning / fraudclosure mess... We need them to foreclose, but instead they should be going to jail! It's pure crazy to me.
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In other words, what Keeshonder wrote. "Not priced out of the market, but the price you can afford just might go down."
So it wasn't a lot of BS ...
Come on, we both know it was more then that - and even then, we all know "the price you can afford just might go down"... Everything is getting more expensive.
I still don't get the whole "buy on what you can afford monthly thing".
You buy based on the entire purchase price.
Simply put, if I make 100K a year, I should be looking for homes in the 200-350K range and nothing more.
I definitely NEVER EVER would buy going into the situation saying, "Well, I can afford $1800/mo" or whatever.
Thats just plain ridiculous, and in the instance of car purchase, the very very first thing you deflect when talking to the salesman.
Instead, you work backwards. Say I know that I am ok paying 1600-2100/mo mortgage. I do research based on current interest rates, tax conditions etc. And I find out how much home that will afford. Then I go look for product that meets that criteria.
When you go into a situation from the point of view of what you can afford per month, there is much manipulation of numbers that can and WILL occurr, and you will wind up overpaying, usually by quite a bit.
One more thing...I keep seeing it mentioned that affordability will go down as interest rates rise.
Bullcrap.
What will happen is savings will increase as home prices decrease. While there is not a direct correlation between rising interest rates and decline in home prices, there is an indirect correlation in that prices will fall to meet whatever it is people are willing to spend. So in fact, houses actually become MORE affordable when interest rates rise...at least to those who have continued saving in order to mitigate the effects of higher interest rates.
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