California Loan Modifications update

[peterb]

I’ve heard that many rates are keyed off the T Bill 10 year note. These look to be on rising over time. Should these keep on rising, the cost of houses will see more advanced downwrd pressure on the prices.

[DWCAP]

[quote=Eugene][quote=Effective Demand]
I still can’t imagine what the housing market would look like with 7% rates. I don’t think too many of todays homebuyers have thought that far ahead. But that would make the cost of money increase 35-40% and decrease buyers purchasing power significantly. [/quote]

Strictly speaking, rates at 7% instead of 5% would increase one’s pre-tax monthly payments by 16-18% (assuming same purchase price), and, once you account for tax deduction, the increase could be even less, especially at the high end.

Consider a hypothetical household with a 200K pretax income, 850K purchase price with 20% down (on the upper bound of new conforming), with hefty MR and HOA. If interest rates go from 5% to 7%, nominal monthly payments go up 17%, post tax deduction housing costs go up 13%.

[quote]The multi-trillion dollar question is.. how long can the Fed keep 30 yr rates this low. [/quote]

It’s supply and demand, and there are many factors affecting supply and demand.

For example, interest rates north of 6% would cut off refinancing (half of all people with equity refinanced in 2003, the other half refinanced in the last 6 months), and, without people refinancing, volume of new mortgage originations and supply of mortgage backed securities would shrink dramatically. [/quote]

I think what you miss in the calculation above is the emotional/psycological aspect of 7% interest rates. Alot of people are running out and buying now becuase rates are so low, and prices arnt bad (if you can find one). Atleast that is what is getting them off the fence and looking. I dont know how many times I have had to listen to someone trying to get me to start trying to buy a house in the past 4 months or so, but EVERY single one of them I can remember started the argument with low rates.
Now 7% is historically quite low, in the late 70’s to 80’s people couldnt even dream of 7%. But we have had low rates for nearly a decade now. Twice falling below 5% for an extended period of time. People have gotten use to paying really low interest rates, and they wont like it when things go up.

7% (right now) will do two things:

1) People would be less enthuiastic about houseing. There will always be bulls, there will always be people who buy houses. I am talking percentages, and it would be reduced, leading to lower demand and…….

2) NAR would be screaming their bloody heads off till either the government started “intervening” again; or they start suicided bombing the Fed.

[DWCAP]

[quote=Eugene][quote=Effective Demand]
I still can’t imagine what the housing market would look like with 7% rates. I don’t think too many of todays homebuyers have thought that far ahead. But that would make the cost of money increase 35-40% and decrease buyers purchasing power significantly. [/quote]

Strictly speaking, rates at 7% instead of 5% would increase one’s pre-tax monthly payments by 16-18% (assuming same purchase price), and, once you account for tax deduction, the increase could be even less, especially at the high end.

Consider a hypothetical household with a 200K pretax income, 850K purchase price with 20% down (on the upper bound of new conforming), with hefty MR and HOA. If interest rates go from 5% to 7%, nominal monthly payments go up 17%, post tax deduction housing costs go up 13%.

[quote]The multi-trillion dollar question is.. how long can the Fed keep 30 yr rates this low. [/quote]

It’s supply and demand, and there are many factors affecting supply and demand.

For example, interest rates north of 6% would cut off refinancing (half of all people with equity refinanced in 2003, the other half refinanced in the last 6 months), and, without people refinancing, volume of new mortgage originations and supply of mortgage backed securities would shrink dramatically. [/quote]

I think what you miss in the calculation above is the emotional/psycological aspect of 7% interest rates. Alot of people are running out and buying now becuase rates are so low, and prices arnt bad (if you can find one). Atleast that is what is getting them off the fence and looking. I dont know how many times I have had to listen to someone trying to get me to start trying to buy a house in the past 4 months or so, but EVERY single one of them I can remember started the argument with low rates.
Now 7% is historically quite low, in the late 70’s to 80’s people couldnt even dream of 7%. But we have had low rates for nearly a decade now. Twice falling below 5% for an extended period of time. People have gotten use to paying really low interest rates, and they wont like it when things go up.

7% (right now) will do two things:

1) People would be less enthuiastic about houseing. There will always be bulls, there will always be people who buy houses. I am talking percentages, and it would be reduced, leading to lower demand and…….

2) NAR would be screaming their bloody heads off till either the government started “intervening” again; or they start suicided bombing the Fed.

[DWCAP]

[quote=Eugene][quote=Effective Demand]
I still can’t imagine what the housing market would look like with 7% rates. I don’t think too many of todays homebuyers have thought that far ahead. But that would make the cost of money increase 35-40% and decrease buyers purchasing power significantly. [/quote]

Strictly speaking, rates at 7% instead of 5% would increase one’s pre-tax monthly payments by 16-18% (assuming same purchase price), and, once you account for tax deduction, the increase could be even less, especially at the high end.

Consider a hypothetical household with a 200K pretax income, 850K purchase price with 20% down (on the upper bound of new conforming), with hefty MR and HOA. If interest rates go from 5% to 7%, nominal monthly payments go up 17%, post tax deduction housing costs go up 13%.

[quote]The multi-trillion dollar question is.. how long can the Fed keep 30 yr rates this low. [/quote]

It’s supply and demand, and there are many factors affecting supply and demand.

For example, interest rates north of 6% would cut off refinancing (half of all people with equity refinanced in 2003, the other half refinanced in the last 6 months), and, without people refinancing, volume of new mortgage originations and supply of mortgage backed securities would shrink dramatically. [/quote]

I think what you miss in the calculation above is the emotional/psycological aspect of 7% interest rates. Alot of people are running out and buying now becuase rates are so low, and prices arnt bad (if you can find one). Atleast that is what is getting them off the fence and looking. I dont know how many times I have had to listen to someone trying to get me to start trying to buy a house in the past 4 months or so, but EVERY single one of them I can remember started the argument with low rates.
Now 7% is historically quite low, in the late 70’s to 80’s people couldnt even dream of 7%. But we have had low rates for nearly a decade now. Twice falling below 5% for an extended period of time. People have gotten use to paying really low interest rates, and they wont like it when things go up.

7% (right now) will do two things:

1) People would be less enthuiastic about houseing. There will always be bulls, there will always be people who buy houses. I am talking percentages, and it would be reduced, leading to lower demand and…….

2) NAR would be screaming their bloody heads off till either the government started “intervening” again; or they start suicided bombing the Fed.

[DWCAP]

[quote=Eugene][quote=Effective Demand]
I still can’t imagine what the housing market would look like with 7% rates. I don’t think too many of todays homebuyers have thought that far ahead. But that would make the cost of money increase 35-40% and decrease buyers purchasing power significantly. [/quote]

Strictly speaking, rates at 7% instead of 5% would increase one’s pre-tax monthly payments by 16-18% (assuming same purchase price), and, once you account for tax deduction, the increase could be even less, especially at the high end.

Consider a hypothetical household with a 200K pretax income, 850K purchase price with 20% down (on the upper bound of new conforming), with hefty MR and HOA. If interest rates go from 5% to 7%, nominal monthly payments go up 17%, post tax deduction housing costs go up 13%.

[quote]The multi-trillion dollar question is.. how long can the Fed keep 30 yr rates this low. [/quote]

It’s supply and demand, and there are many factors affecting supply and demand.

For example, interest rates north of 6% would cut off refinancing (half of all people with equity refinanced in 2003, the other half refinanced in the last 6 months), and, without people refinancing, volume of new mortgage originations and supply of mortgage backed securities would shrink dramatically. [/quote]

I think what you miss in the calculation above is the emotional/psycological aspect of 7% interest rates. Alot of people are running out and buying now becuase rates are so low, and prices arnt bad (if you can find one). Atleast that is what is getting them off the fence and looking. I dont know how many times I have had to listen to someone trying to get me to start trying to buy a house in the past 4 months or so, but EVERY single one of them I can remember started the argument with low rates.
Now 7% is historically quite low, in the late 70’s to 80’s people couldnt even dream of 7%. But we have had low rates for nearly a decade now. Twice falling below 5% for an extended period of time. People have gotten use to paying really low interest rates, and they wont like it when things go up.

7% (right now) will do two things:

1) People would be less enthuiastic about houseing. There will always be bulls, there will always be people who buy houses. I am talking percentages, and it would be reduced, leading to lower demand and…….

2) NAR would be screaming their bloody heads off till either the government started “intervening” again; or they start suicided bombing the Fed.

[DWCAP]

[quote=Eugene][quote=Effective Demand]
I still can’t imagine what the housing market would look like with 7% rates. I don’t think too many of todays homebuyers have thought that far ahead. But that would make the cost of money increase 35-40% and decrease buyers purchasing power significantly. [/quote]

Strictly speaking, rates at 7% instead of 5% would increase one’s pre-tax monthly payments by 16-18% (assuming same purchase price), and, once you account for tax deduction, the increase could be even less, especially at the high end.

Consider a hypothetical household with a 200K pretax income, 850K purchase price with 20% down (on the upper bound of new conforming), with hefty MR and HOA. If interest rates go from 5% to 7%, nominal monthly payments go up 17%, post tax deduction housing costs go up 13%.

[quote]The multi-trillion dollar question is.. how long can the Fed keep 30 yr rates this low. [/quote]

It’s supply and demand, and there are many factors affecting supply and demand.

For example, interest rates north of 6% would cut off refinancing (half of all people with equity refinanced in 2003, the other half refinanced in the last 6 months), and, without people refinancing, volume of new mortgage originations and supply of mortgage backed securities would shrink dramatically. [/quote]

I think what you miss in the calculation above is the emotional/psycological aspect of 7% interest rates. Alot of people are running out and buying now becuase rates are so low, and prices arnt bad (if you can find one). Atleast that is what is getting them off the fence and looking. I dont know how many times I have had to listen to someone trying to get me to start trying to buy a house in the past 4 months or so, but EVERY single one of them I can remember started the argument with low rates.
Now 7% is historically quite low, in the late 70’s to 80’s people couldnt even dream of 7%. But we have had low rates for nearly a decade now. Twice falling below 5% for an extended period of time. People have gotten use to paying really low interest rates, and they wont like it when things go up.

7% (right now) will do two things:

1) People would be less enthuiastic about houseing. There will always be bulls, there will always be people who buy houses. I am talking percentages, and it would be reduced, leading to lower demand and…….

2) NAR would be screaming their bloody heads off till either the government started “intervening” again; or they start suicided bombing the Fed.

[DaCounselor]

“I think we all have to at least consider the possibility that we have entered an era of “permanent” low long term interest rates. I can’t even fathom a fed funds rate above 2-3% at this point. Look at Japan.”
_________________________________

I am definitely in the camp of believers of low rates for years to come. After the dot-com crash we had an FFR at 3% or less for about 4 years. That’s quite awhile. If you believe the situation is far worse now, there is certainly a good argument for an even longer run of low rates. We are now only about a year and half into an FFR of 3% or less.

[DaCounselor]

“I think we all have to at least consider the possibility that we have entered an era of “permanent” low long term interest rates. I can’t even fathom a fed funds rate above 2-3% at this point. Look at Japan.”
_________________________________

I am definitely in the camp of believers of low rates for years to come. After the dot-com crash we had an FFR at 3% or less for about 4 years. That’s quite awhile. If you believe the situation is far worse now, there is certainly a good argument for an even longer run of low rates. We are now only about a year and half into an FFR of 3% or less.

[DaCounselor]

“I think we all have to at least consider the possibility that we have entered an era of “permanent” low long term interest rates. I can’t even fathom a fed funds rate above 2-3% at this point. Look at Japan.”
_________________________________

I am definitely in the camp of believers of low rates for years to come. After the dot-com crash we had an FFR at 3% or less for about 4 years. That’s quite awhile. If you believe the situation is far worse now, there is certainly a good argument for an even longer run of low rates. We are now only about a year and half into an FFR of 3% or less.

[DaCounselor]

“I think we all have to at least consider the possibility that we have entered an era of “permanent” low long term interest rates. I can’t even fathom a fed funds rate above 2-3% at this point. Look at Japan.”
_________________________________

I am definitely in the camp of believers of low rates for years to come. After the dot-com crash we had an FFR at 3% or less for about 4 years. That’s quite awhile. If you believe the situation is far worse now, there is certainly a good argument for an even longer run of low rates. We are now only about a year and half into an FFR of 3% or less.

[DaCounselor]

“I think we all have to at least consider the possibility that we have entered an era of “permanent” low long term interest rates. I can’t even fathom a fed funds rate above 2-3% at this point. Look at Japan.”
_________________________________

I am definitely in the camp of believers of low rates for years to come. After the dot-com crash we had an FFR at 3% or less for about 4 years. That’s quite awhile. If you believe the situation is far worse now, there is certainly a good argument for an even longer run of low rates. We are now only about a year and half into an FFR of 3% or less.

[SD Realtor]

Very good points in this thread all around. I agree with all of them. Even though the effective post tax increase on a higher payment is lower then the pre tax increase, that sticker shock is real and I find buyers adhere to monthly budget that is pre tax based. Most people do not have the discipline to save the tax refund and then spread it out over the mortgage payments for the entire year. Similarly higher rates reduce buying power and qualifications so I do fee that the rate hikes hurt alot even with post tax calculations taken into the calculation.

I do kind of believe we are in a longer term low rate environment IFF (if and ONLY if) our foreign creditors keep extending our bar tab. I believe the treasuries are pretty much the benchmark for alot of lending activities, be it corporates, munis, even mortgages. To me, and I am a simple man, the only thing that fluctuates is the margins on these other vehicles and those margins are basically risk assessments. I can be and probaby am wrong to view things in that simple of a manner. Counselor and Pem are probably correct, as long as the pipe keeps flowing from China it seems like it is a reasonable assessment. When that spigot is shut down though…

Game on.

[SD Realtor]

Very good points in this thread all around. I agree with all of them. Even though the effective post tax increase on a higher payment is lower then the pre tax increase, that sticker shock is real and I find buyers adhere to monthly budget that is pre tax based. Most people do not have the discipline to save the tax refund and then spread it out over the mortgage payments for the entire year. Similarly higher rates reduce buying power and qualifications so I do fee that the rate hikes hurt alot even with post tax calculations taken into the calculation.

I do kind of believe we are in a longer term low rate environment IFF (if and ONLY if) our foreign creditors keep extending our bar tab. I believe the treasuries are pretty much the benchmark for alot of lending activities, be it corporates, munis, even mortgages. To me, and I am a simple man, the only thing that fluctuates is the margins on these other vehicles and those margins are basically risk assessments. I can be and probaby am wrong to view things in that simple of a manner. Counselor and Pem are probably correct, as long as the pipe keeps flowing from China it seems like it is a reasonable assessment. When that spigot is shut down though…

Game on.

[SD Realtor]

Very good points in this thread all around. I agree with all of them. Even though the effective post tax increase on a higher payment is lower then the pre tax increase, that sticker shock is real and I find buyers adhere to monthly budget that is pre tax based. Most people do not have the discipline to save the tax refund and then spread it out over the mortgage payments for the entire year. Similarly higher rates reduce buying power and qualifications so I do fee that the rate hikes hurt alot even with post tax calculations taken into the calculation.

I do kind of believe we are in a longer term low rate environment IFF (if and ONLY if) our foreign creditors keep extending our bar tab. I believe the treasuries are pretty much the benchmark for alot of lending activities, be it corporates, munis, even mortgages. To me, and I am a simple man, the only thing that fluctuates is the margins on these other vehicles and those margins are basically risk assessments. I can be and probaby am wrong to view things in that simple of a manner. Counselor and Pem are probably correct, as long as the pipe keeps flowing from China it seems like it is a reasonable assessment. When that spigot is shut down though…

Game on.

[SD Realtor]

Very good points in this thread all around. I agree with all of them. Even though the effective post tax increase on a higher payment is lower then the pre tax increase, that sticker shock is real and I find buyers adhere to monthly budget that is pre tax based. Most people do not have the discipline to save the tax refund and then spread it out over the mortgage payments for the entire year. Similarly higher rates reduce buying power and qualifications so I do fee that the rate hikes hurt alot even with post tax calculations taken into the calculation.

I do kind of believe we are in a longer term low rate environment IFF (if and ONLY if) our foreign creditors keep extending our bar tab. I believe the treasuries are pretty much the benchmark for alot of lending activities, be it corporates, munis, even mortgages. To me, and I am a simple man, the only thing that fluctuates is the margins on these other vehicles and those margins are basically risk assessments. I can be and probaby am wrong to view things in that simple of a manner. Counselor and Pem are probably correct, as long as the pipe keeps flowing from China it seems like it is a reasonable assessment. When that spigot is shut down though…

Game on.

[Author]

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