[quote=Bob]For those of you who are worried about higher interest rates in the coming months and years, don’t worry, higher rates can be a good thing. Let me explain….
Currently, what we have going on at the Federal level is one of the most anti capitalistic administrations in modern history – combined with an academic interventionist chairman of the federal reserve who isn’t much better. Their goal is to artificially inflate housing prices using three primary tools.
1) Record low mortgage rates.
2) Loan modifications and moratoriums.
3) FHA loans to as many as possible, including “marginally” qualified applicants.
If any one of the above three tools gets derailed, it throws the plan off track and puts further downward pressure on real estate prices. Thats why yesterday’s rate spikes brought such negative drama to Wall St. and D.C…. Wall St. (as well as the feds) were scared silly that weak demand for US securities, combined with worries about inflation, would lead to higher interest rates and a continued deterioration of the housing sector.
Here’s the point….at some time in the not too distant future Ben Bernanke won’t be able to control the events that have kept mortgage rates artificially low. When that day comes, (and trust me, its coming) rates will go up significantly due to market forces. Higher rates will choke the housing recovery. In fact, in just the past week new loan originations were way down due to a small uptick in interest rates. Just imagine what will happen when rates go up significantly ? I’ll tell you what will happen…..demand will be reduced significantly and supply will increase, which will eventually lead to further price drops.
So here’s my prediction…during the coming summer months prices will remain stable, (or go up slightly) at the low end. But come this fall and winter, prices will once again DROP from current levels…perhaps as much as 5%-10% at the low end, and more at the mid/upper ranges throughout San Diego County. Why ? Because the combination of higher interest rates, higher unemployment rates, increased foreclosures, and the end of the spring/summer buying season will create a significant slowdown.[/quote]
If the above scenario is true, why are people still waiting to buy? Will the mortage payments be lower even though rates are higher, because housing prices will fall faster than a Manny Pacquiao opponent?
Can’t the banks just hide inventory and keep the prices artificially high? Or will demand drop like crazy when rates go above 7%, forcing prices down? And if prices do drop further with rising interest rates, wouldn’t the monthly mortgage payments remain the same as they are right now? Maybe I gotta crunch some numbers…
