30 year mortgage rates hit 5%

[flyer]

[quote=sdrealtor][quote=flyer]With all of my wife’s projects in the entertainment industry, when not Zooming business meetings, we’re in the Los Angeles area once in awhile, and we’re hearing real estate may be cooling off a bit up there as well. Our daughter and her husband live in Malibu, and they are also seeing a slight decline in demand, so, things do seem to be changing in various SoCal and other areas.[/quote]

It’s literally been only the last week and in a small way. If you are hearing things I’d suggest an exorcism or at least a good shrink[/quote]

We were just up there this week, and it came up in conversation, so it will be interesting to see if it actually becomes a “thing.” It will be fun to see how it all goes.

[moon]

[quote=Rich Toscano]I am going to put up an update today(ish) but my thoughts on whether it’s a bubble are in this article: https://pcasd.com/whats-going-on-with-housing/%5B/quote%5D
Hi Rich, I cannot wait to read your updates on this article. Things have changed a lot since last October when you published this article, such as housing price keeps going up in a crazy way, mortgage rage went to 5% already, and will go even higher in a faster way than we ever expect. What do you think the affordability of housing now? Do you think the Fed will do everything (actually I meant multiple rate hikes in a short term)to control the inflation?

[moon]

…

[observer]

The other issue is that second home mortgage rates are now similar to investment loan rates, very close to 6%! Just a few months ago they were under 3%. In some markets some of the price appreciation has been due to increased numbers of second home buyers.

[Rich Toscano]

[quote=sdrealtor]No problem with the busting of the chops either.[/quote]

Glad to hear it… it’s all meant to be in good fun. 🙂

[Anonymous]

So far the Fed has done very little except jawbone. Balance sheet has not moved down (i.e. no sign of tightening) and they’ve only raised fed funds rate a paltry .25.

So yes the future of this bubble depends entirely on the Fed’s actions (or in-actions). Personally I think they will actually carry through with their tough talk this time because not only is inflation out of control for the first time in 40 years, but there needs to be a crash in order for them to re-inflate the next bubble. That is the cycle of things in a completely artificial, debt based bubble economy that we live in. The only question is how big of a crash will they try to engineer, and will they be able to keep it under control once it starts?

[Rich Toscano]

[quote=moon]Hi Rich, I cannot wait to read your updates on this article. Things have changed a lot since last October when you published this article, such as housing price keeps going up in a crazy way, mortgage rage went to 5% already, and will go even higher in a faster way than we ever expect. What do you think the affordability of housing now? Do you think the Fed will do everything (actually I meant multiple rate hikes in a short term)to control the inflation?[/quote]

Hi – It is up in the main section here: https://www.piggington.com/monthly_housing_data_no_inventory_prices_rates_affordability

I agree things have changed a lot since then. In the original article, my argument was, “prices are really high but it’s possibly sustainable IF rates stay low.” Well… that didn’t happen. So affordability is absolutely terrible — as you can see in that article, the real monthly payment is now at the level it was at the bubble peak. It’s a pretty risky situation.

Yes, I do think the Fed is serious about trying to control inflation. How that actually plays out is unknowable though. It seems likely they will keep tightening until inflation backs off, or something breaks in financial markets. The big question is which of those happen first (and given extreme valuations in so many areas of the markets, unfortunately the latter is a real possibility).

So I guess I think the Fed currently intends to tighten a lot, but if they hit that second possibility (financial market problems with inflation still high) they could change course. And btw, I don’t think that necessarily would mean that they don’t care about inflation. I think the Fed sees financial markets as the main conduit for their policy… if markets sell off, then via the wealth effect that will probably reduce inflation. So, if markets decline enough, there’s a good chance they will pause, to see if the market does the work for them.

But I’m getting ahead of myself here. I do think it’s clear that the Fed very much cares about high inflation, they have acknowledged that they were wrong about the transitory thing, and they are serious about stopping it. But nobody on earth knows how that will play out in real life. I wouldn’t want to be in their shoes right now, that’s for sure.

[flyer]

For many of us who purchased our primary and investment properties well in the past, the accelerating rate environment is not really a concern, but, along with the great info from Rich, here are some other interesting and opposing takes on the situation that may or may not play out. Also, there are still many all cash buyers out there, with a particular interest in CA, so only time will tell.

https://www.cnbc.com/2022/04/07/rising-mortgage-rates-cause-more-home-sellers-to-lower-asking-prices.html

https://fortune.com/2022/03/28/mortgage-rate-hike-could-slow-the-housing-market/

[moon]

Rich

Thank you for your input. Before my friend introducing me to this website, I did a simple calculation about housing affordability in SD, and came out with the same conclusion as you: the SD market is very risky now because of high monthly payments, plus high inflation made everything so expensive, how much room left for housing price to continue going up? People need to by food, need to buy gasoline, but salary didn’t go up accordingly, then how people will live with that? You either stop putting money in high price homes or reducing your grocery bills. If inflation doesn’t get controlled, eventually that will lead to a recession, I think that’s why Fed is serious about inflation now, although they should done that a year ago. The stock market already reacted on Fed’s actions, time will tell what gonna happen.

I am trying to buy my first home now, even it is risky, I am still looking and fighting with myself everyday. It is very sad I put myself in such an awkward situation, but this is life.

[quote=Rich Toscano][quote=moon]Hi Rich, I cannot wait to read your updates on this article. Things have changed a lot since last October when you published this article, such as housing price keeps going up in a crazy way, mortgage rage went to 5% already, and will go even higher in a faster way than we ever expect. What do you think the affordability of housing now? Do you think the Fed will do everything (actually I meant multiple rate hikes in a short term)to control the inflation?[/quote]

Hi – It is up in the main section here: https://www.piggington.com/monthly_housing_data_no_inventory_prices_rates_affordability

I agree things have changed a lot since then. In the original article, my argument was, “prices are really high but it’s possibly sustainable IF rates stay low.” Well… that didn’t happen. So affordability is absolutely terrible — as you can see in that article, the real monthly payment is now at the level it was at the bubble peak. It’s a pretty risky situation.

Yes, I do think the Fed is serious about trying to control inflation. How that actually plays out is unknowable though. It seems likely they will keep tightening until inflation backs off, or something breaks in financial markets. The big question is which of those happen first (and given extreme valuations in so many areas of the markets, unfortunately the latter is a real possibility).

So I guess I think the Fed currently intends to tighten a lot, but if they hit that second possibility (financial market problems with inflation still high) they could change course. And btw, I don’t think that necessarily would mean that they don’t care about inflation. I think the Fed sees financial markets as the main conduit for their policy… if markets sell off, then via the wealth effect that will probably reduce inflation. So, if markets decline enough, there’s a good chance they will pause, to see if the market does the work for them.

But I’m getting ahead of myself here. I do think it’s clear that the Fed very much cares about high inflation, they have acknowledged that they were wrong about the transitory thing, and they are serious about stopping it. But nobody on earth knows how that will play out in real life. I wouldn’t want to be in their shoes right now, that’s for sure.[/quote]

[sdrealtor]

Not only did the stock market react to fed recent and expected actions but loan rates have also already priced that in. If the Fed raises short term rates 2% in the next several months that does not correlate to 2% higher mortgage rates. That’s not how it works

[sdrealtor]

Didn’t someone predict this here two months ago? I wonder who?

Adjustable-rate mortgage demand doubles
https://www.cnbc.com/2022/04/27/adjustable-rate-mortgage-demand-doubles-as-interest-rates-hit-the-highest-since-2009.html?__source=iosappshare%7Ccom.apple.UIKit.activity.Message

It’s only just the beginning! Bring on the adjustables!

[limkotir]

[quote=sdrealtor]Didn’t someone predict this here two months ago? I wonder who?

Adjustable-rate mortgage demand doubles
https://www.cnbc.com/2022/04/27/adjustable-rate-mortgage-demand-doubles-as-interest-rates-hit-the-highest-since-2009.html?__source=iosappshare%7Ccom.apple.UIKit.activity.Message

It’s only just the beginning! Bring on the adjustables![/quote]

For those starter SFH (or likely condos / townhouses) buyers expect to grow their earnings in the coming years, ARM might not be a bad way to go to get into the SD market, then sell the property 5/7/10 years down the road via 1031 exchange into a destination house / zip area.

[an]

[quote=limkotir][quote=sdrealtor]Didn’t someone predict this here two months ago? I wonder who?

Adjustable-rate mortgage demand doubles
https://www.cnbc.com/2022/04/27/adjustable-rate-mortgage-demand-doubles-as-interest-rates-hit-the-highest-since-2009.html?__source=iosappshare%7Ccom.apple.UIKit.activity.Message

It’s only just the beginning! Bring on the adjustables![/quote]

For those starter SFH (or likely condos / townhouses) buyers expect to grow their earnings in the coming years, ARM might not be a bad way to go to get into the SD market, then sell the property 5/7/10 years down the road via 1031 exchange into a destination house / zip area.[/quote]
No need to 1031 if you’re using it as a primary residence. You have $500k in tax free gain to use (assuming you’re a couple)

[DataAgent]

We bought out current home in 2007. Interest rates were high for the time so we went with a 3/1 ARM. 3 years after we bought, interest rates were much lower. A few years later, we locked into a much lower rate. Although we are not gamblers, sometime it pays to take a little risk.

A few months ago (same house), we re-fi’d into a 10 year IO loan with cash out @ 2.6% rate. It’s hard to qualify for low-rate IO loans but we met all the requirements. We now have 9.5 years with a decent rate and a very low mortgage payment. A lot can happen in 9.5 years so we have lots of options.

[sdrealtor]

[quote=limkotir][quote=sdrealtor]Didn’t someone predict this here two months ago? I wonder who?

Adjustable-rate mortgage demand doubles
https://www.cnbc.com/2022/04/27/adjustable-rate-mortgage-demand-doubles-as-interest-rates-hit-the-highest-since-2009.html?__source=iosappshare%7Ccom.apple.UIKit.activity.Message

It’s only just the beginning! Bring on the adjustables![/quote]

For those starter SFH (or likely condos / townhouses) buyers expect to grow their earnings in the coming years, ARM might not be a bad way to go to get into the SD market, then sell the property 5/7/10 years down the road via 1031 exchange into a destination house / zip area.[/quote]

Yes for a variety of reasons people rarely hold onto mortgages longer than 5 to 10 years. Now the low rates of the last few years may make that less common but most people sell or refi within 5 to 10 years at least once.

[Author]

Posts