If you resided in SD in the early eighties, certainly you must remember the ’81-’83 spike in interest rates. I believe FNMA fixed conventional rates were up to 15.5% at one point in either ’82 or ’83. Do you recall RE prices falling precipitously between mid ’79 and ’83 as fixed mortgage interest rates rose from about 8.5% to 12.5% and beyond? I don’t. I don’t remember prices going down at all. What I DO remember is sellers carrying back seconds and also offering financing. During ’88-89, the local market was on fire and fixed MIRs prevailed at 10-11%. Even from about ’97 to ’03, the local market was on fire and fixed MIR’s fluctuated between 6.5% and 7.5%.
Nothing has changed. During all those periods, a prospective homebuyer had to be decisive and make offers and hope they would be countered and/or accepted or the property would be gone within days, unless it had structural problems or was a heavy fixer, which took a little longer to sell.
I lost out on eight offers I placed (due to excessive overbidding) and cancelled one escrow (due to severe plumbing problems which the seller wouldn’t fix) before successfully closing escrow in 2001 on my current home.
The prevailing fixed MIR at that time was 6.75%.
I don’t understand what all these fence-sitters are waiting for. This isn’t Kansas. Do they understand how many 59.5+ year-olds everywhere have access to hundreds of thousands of dollars in cash?? This group understands as well as appreciates the value they see in properties as most of them have seen a few of these cycles in their lifetimes.[/quote]
BG,
You’re ignoring the two main reasons for the house price inflation of the 70s and 80s.
…
1. Baby Boomers entering peak buying years:
“From 1955-64 nearly 42 million births occurred in the U.S., an unprecedented expansion. The roots of the baby boom lie in the universal rush to early marriage and favorable economic climate for the relatively scarce young men born of the Depression cohort. The impact of the boom interrupted a century-long fertility decline. Pro-marriage, pronatalist norms were revived by the Depression cohort who formed families of at least 2 children or more. During the 1960-70’s schools, colleges, and universities were built to accomodate the boom and are now excessive for the baby bust cohort. Unemployment and crime rates rose and fell with the passing of the boom babies through late adolescence and early adulthood. In the 1980’s, boom babies will be aged 20-30. Demands for housing will be high. Annual birth numbers will increase even if the rate of childbearing hovers below replacement level at about 1.8 per woman. Per capita earnings and overall labor productivity should improve as the boom baby cohort reaches middle age in the 1990s
2. Women entering the workforce en masse, temporarily increasing the purchasing power of those households with two incomes until prices rose enough to offset it:
Without the increase in interest rates during that time, housing prices would probably have gone parabolic. Mind you, union participation rates were much higher then, and wages were going up for the majority of working people. That is no longer the case, and hasn’t been for at least a decade (much longer, for some professions).
There is a direct correlation between asset prices and interest rates, and it’s very pronounced in asset classes (like housing) where most purchases are made with credit. Just because prices/rates don’t move inversely at a given moment doesn’t mean that they aren’t correlated; there are other variables that can affect prices as well, masking the effects of interest rate changes.
Once again, people with cash will NOT overpay for something when the purchasing power of all their competition has been diminished by higher rates. Not only that, but people with cash will want to preserve as much of it as possible when rates are high (and cash is dearest) so that they can earn a return on it.
And when mortgage interest rates were in the 6-8% range in the late 90s/early 2000s, prices were a lot lower in most places.
