>1% interest SPIKE = 10% house price drop?

[Doofrat]

Thanks FSD. I hadn’t thought about the fact that the payment is the same each month over the life of the loan, so the effect of the interest portion of the payment is spread across so many years.

[(former)FormerSanDiegan]

[quote=doofrat]Thanks FSD. I hadn’t thought about the fact that the payment is the same each month over the life of the loan, so the effect of the interest portion of the payment is spread across so many years.[/quote]

No problem.
Also note that as the interest rate increases, so does the tax-deductible portion of the payment. SO the impact of an increase from 4-5% may be less than the 12% increase in before tax payment posted above. (but depends on individual situations).

[(former)FormerSanDiegan]

[quote=doofrat]Thanks FSD. I hadn’t thought about the fact that the payment is the same each month over the life of the loan, so the effect of the interest portion of the payment is spread across so many years.[/quote]

No problem.
Also note that as the interest rate increases, so does the tax-deductible portion of the payment. SO the impact of an increase from 4-5% may be less than the 12% increase in before tax payment posted above. (but depends on individual situations).

[(former)FormerSanDiegan]

[quote=doofrat]Thanks FSD. I hadn’t thought about the fact that the payment is the same each month over the life of the loan, so the effect of the interest portion of the payment is spread across so many years.[/quote]

No problem.
Also note that as the interest rate increases, so does the tax-deductible portion of the payment. SO the impact of an increase from 4-5% may be less than the 12% increase in before tax payment posted above. (but depends on individual situations).

[(former)FormerSanDiegan]

[quote=doofrat]Thanks FSD. I hadn’t thought about the fact that the payment is the same each month over the life of the loan, so the effect of the interest portion of the payment is spread across so many years.[/quote]

No problem.
Also note that as the interest rate increases, so does the tax-deductible portion of the payment. SO the impact of an increase from 4-5% may be less than the 12% increase in before tax payment posted above. (but depends on individual situations).

[(former)FormerSanDiegan]

[quote=doofrat]Thanks FSD. I hadn’t thought about the fact that the payment is the same each month over the life of the loan, so the effect of the interest portion of the payment is spread across so many years.[/quote]

No problem.
Also note that as the interest rate increases, so does the tax-deductible portion of the payment. SO the impact of an increase from 4-5% may be less than the 12% increase in before tax payment posted above. (but depends on individual situations).

[Arraya]

If all other variables were the same, in a full doc world, interest rates would probably have a close-to linear correlation to prices. But we live in the real world, where variables are too numerous to mention and it is not the case.

[Arraya]

If all other variables were the same, in a full doc world, interest rates would probably have a close-to linear correlation to prices. But we live in the real world, where variables are too numerous to mention and it is not the case.

[Arraya]

If all other variables were the same, in a full doc world, interest rates would probably have a close-to linear correlation to prices. But we live in the real world, where variables are too numerous to mention and it is not the case.

[Arraya]

If all other variables were the same, in a full doc world, interest rates would probably have a close-to linear correlation to prices. But we live in the real world, where variables are too numerous to mention and it is not the case.

[Arraya]

If all other variables were the same, in a full doc world, interest rates would probably have a close-to linear correlation to prices. But we live in the real world, where variables are too numerous to mention and it is not the case.

[CA renter]

[quote=FormerSanDiegan]If rates changed instantaneously by 1% and no other factors in the economy changed, then the price would be inversely related to rate.

However, rate changes never happen in a vaccum. Rates respond to underlying economics, so changes in home prices rarely respond as you suggest.

Example #1: From 2006 to 2010, 30-yr mortgage rates declined from around 6.5% to less than 5%.
Did prices increase by 10%+ during that period ? Hell No. Prices declined at the steepest rates since the depression.

Example #2: In late 2002 30-yr mortgage interest rates were at 6%. BY mid 2006 they were 6.5%.
Were home prices flat during that period ? No. They were quite bubblicious.

Example #3: From 1990 to 1995 rates dropped from 10% + to about 7.5%. Did prices rise during this period ? Not really.
This period included the worst decline (until superceded by the 2006-2009 decline) in home prices in post-war California.

Example #4: In 1972, 30-yr mortgage rates were about 7.4%. By 1989, rates were above 10%. What did home prices do doing this period ?
Hint: they did not decline.

The simple point is that it’s not that simple. Rates do not change in a vacuum. As a thought experiment prices are inversely proportional to rates, but in reality, it is not neccessarily so.[/quote]

You’re right about various factors affecting RE prices (including interest rates), but in your example #1:

From 2006 to 2010, 30-yr mortgage rates declined from around 6.5% to less than 5%.
Did prices increase by 10%+ during that period ? Hell No. Prices declined at the steepest rates since the depression.

Interest rates were *effectively* increasing because people had been using ARMs during the bubble, and were moving to fixed-rate mortgages in larger numbers. The “cheap” neg-am and hybrid-ARM loans with ~1-3% interest rates were disappearing, so buyers of houses were paying higher (FRM) interest rates, which is what caused the price declines. Also, existing “homeowners” with ARMs were seeing their rates increase at the beginning of this period, which is when we saw the steepest price declines. Once those short-term interest rates stabilized (thanks to govt intervention), we saw less distress.

——————

In your example #2:

Example #2: In late 2002 30-yr mortgage interest rates were at 6%. BY mid 2006 they were 6.5%.
Were home prices flat during that period ? No. They were quite bubblicious.

Rates were *effectively* going down during this time because people were moving from (higher) fixed-rate to (lower) adjustable-rate mortgages en masse, and the ultra-cheap neg-am loans were beginning to hit the market in larger numbers as well.

In essence, you can’t really look at 30-year mortgages and make assumptions about prices based on what those rates were doing. We have to look at what was happening in the mortgage market, in general, and look for changing trends to know what was really going on.
—————

Also, in your example #4, during the 70s and 80s, Baby Boomers began entering their peak buying years. Additionally, women were entering the workforce in unprecedented numbers, forcing prices up (IMHO, this is where all that “inflation” came from during the 70s and 80s). If interest rates hadn’t been rising during this time, prices would probably have skyrocketed even higher.

[CA renter]

[quote=FormerSanDiegan]If rates changed instantaneously by 1% and no other factors in the economy changed, then the price would be inversely related to rate.

However, rate changes never happen in a vaccum. Rates respond to underlying economics, so changes in home prices rarely respond as you suggest.

Example #1: From 2006 to 2010, 30-yr mortgage rates declined from around 6.5% to less than 5%.
Did prices increase by 10%+ during that period ? Hell No. Prices declined at the steepest rates since the depression.

Example #2: In late 2002 30-yr mortgage interest rates were at 6%. BY mid 2006 they were 6.5%.
Were home prices flat during that period ? No. They were quite bubblicious.

Example #3: From 1990 to 1995 rates dropped from 10% + to about 7.5%. Did prices rise during this period ? Not really.
This period included the worst decline (until superceded by the 2006-2009 decline) in home prices in post-war California.

Example #4: In 1972, 30-yr mortgage rates were about 7.4%. By 1989, rates were above 10%. What did home prices do doing this period ?
Hint: they did not decline.

The simple point is that it’s not that simple. Rates do not change in a vacuum. As a thought experiment prices are inversely proportional to rates, but in reality, it is not neccessarily so.[/quote]

You’re right about various factors affecting RE prices (including interest rates), but in your example #1:

From 2006 to 2010, 30-yr mortgage rates declined from around 6.5% to less than 5%.
Did prices increase by 10%+ during that period ? Hell No. Prices declined at the steepest rates since the depression.

Interest rates were *effectively* increasing because people had been using ARMs during the bubble, and were moving to fixed-rate mortgages in larger numbers. The “cheap” neg-am and hybrid-ARM loans with ~1-3% interest rates were disappearing, so buyers of houses were paying higher (FRM) interest rates, which is what caused the price declines. Also, existing “homeowners” with ARMs were seeing their rates increase at the beginning of this period, which is when we saw the steepest price declines. Once those short-term interest rates stabilized (thanks to govt intervention), we saw less distress.

——————

In your example #2:

Example #2: In late 2002 30-yr mortgage interest rates were at 6%. BY mid 2006 they were 6.5%.
Were home prices flat during that period ? No. They were quite bubblicious.

Rates were *effectively* going down during this time because people were moving from (higher) fixed-rate to (lower) adjustable-rate mortgages en masse, and the ultra-cheap neg-am loans were beginning to hit the market in larger numbers as well.

In essence, you can’t really look at 30-year mortgages and make assumptions about prices based on what those rates were doing. We have to look at what was happening in the mortgage market, in general, and look for changing trends to know what was really going on.
—————

Also, in your example #4, during the 70s and 80s, Baby Boomers began entering their peak buying years. Additionally, women were entering the workforce in unprecedented numbers, forcing prices up (IMHO, this is where all that “inflation” came from during the 70s and 80s). If interest rates hadn’t been rising during this time, prices would probably have skyrocketed even higher.

[CA renter]

[quote=FormerSanDiegan]If rates changed instantaneously by 1% and no other factors in the economy changed, then the price would be inversely related to rate.

However, rate changes never happen in a vaccum. Rates respond to underlying economics, so changes in home prices rarely respond as you suggest.

Example #1: From 2006 to 2010, 30-yr mortgage rates declined from around 6.5% to less than 5%.
Did prices increase by 10%+ during that period ? Hell No. Prices declined at the steepest rates since the depression.

Example #2: In late 2002 30-yr mortgage interest rates were at 6%. BY mid 2006 they were 6.5%.
Were home prices flat during that period ? No. They were quite bubblicious.

Example #3: From 1990 to 1995 rates dropped from 10% + to about 7.5%. Did prices rise during this period ? Not really.
This period included the worst decline (until superceded by the 2006-2009 decline) in home prices in post-war California.

Example #4: In 1972, 30-yr mortgage rates were about 7.4%. By 1989, rates were above 10%. What did home prices do doing this period ?
Hint: they did not decline.

The simple point is that it’s not that simple. Rates do not change in a vacuum. As a thought experiment prices are inversely proportional to rates, but in reality, it is not neccessarily so.[/quote]

You’re right about various factors affecting RE prices (including interest rates), but in your example #1:

From 2006 to 2010, 30-yr mortgage rates declined from around 6.5% to less than 5%.
Did prices increase by 10%+ during that period ? Hell No. Prices declined at the steepest rates since the depression.

Interest rates were *effectively* increasing because people had been using ARMs during the bubble, and were moving to fixed-rate mortgages in larger numbers. The “cheap” neg-am and hybrid-ARM loans with ~1-3% interest rates were disappearing, so buyers of houses were paying higher (FRM) interest rates, which is what caused the price declines. Also, existing “homeowners” with ARMs were seeing their rates increase at the beginning of this period, which is when we saw the steepest price declines. Once those short-term interest rates stabilized (thanks to govt intervention), we saw less distress.

——————

In your example #2:

Example #2: In late 2002 30-yr mortgage interest rates were at 6%. BY mid 2006 they were 6.5%.
Were home prices flat during that period ? No. They were quite bubblicious.

Rates were *effectively* going down during this time because people were moving from (higher) fixed-rate to (lower) adjustable-rate mortgages en masse, and the ultra-cheap neg-am loans were beginning to hit the market in larger numbers as well.

In essence, you can’t really look at 30-year mortgages and make assumptions about prices based on what those rates were doing. We have to look at what was happening in the mortgage market, in general, and look for changing trends to know what was really going on.
—————

Also, in your example #4, during the 70s and 80s, Baby Boomers began entering their peak buying years. Additionally, women were entering the workforce in unprecedented numbers, forcing prices up (IMHO, this is where all that “inflation” came from during the 70s and 80s). If interest rates hadn’t been rising during this time, prices would probably have skyrocketed even higher.

[CA renter]

[quote=FormerSanDiegan]If rates changed instantaneously by 1% and no other factors in the economy changed, then the price would be inversely related to rate.

However, rate changes never happen in a vaccum. Rates respond to underlying economics, so changes in home prices rarely respond as you suggest.

Example #1: From 2006 to 2010, 30-yr mortgage rates declined from around 6.5% to less than 5%.
Did prices increase by 10%+ during that period ? Hell No. Prices declined at the steepest rates since the depression.

Example #2: In late 2002 30-yr mortgage interest rates were at 6%. BY mid 2006 they were 6.5%.
Were home prices flat during that period ? No. They were quite bubblicious.

Example #3: From 1990 to 1995 rates dropped from 10% + to about 7.5%. Did prices rise during this period ? Not really.
This period included the worst decline (until superceded by the 2006-2009 decline) in home prices in post-war California.

Example #4: In 1972, 30-yr mortgage rates were about 7.4%. By 1989, rates were above 10%. What did home prices do doing this period ?
Hint: they did not decline.

The simple point is that it’s not that simple. Rates do not change in a vacuum. As a thought experiment prices are inversely proportional to rates, but in reality, it is not neccessarily so.[/quote]

You’re right about various factors affecting RE prices (including interest rates), but in your example #1:

From 2006 to 2010, 30-yr mortgage rates declined from around 6.5% to less than 5%.
Did prices increase by 10%+ during that period ? Hell No. Prices declined at the steepest rates since the depression.

Interest rates were *effectively* increasing because people had been using ARMs during the bubble, and were moving to fixed-rate mortgages in larger numbers. The “cheap” neg-am and hybrid-ARM loans with ~1-3% interest rates were disappearing, so buyers of houses were paying higher (FRM) interest rates, which is what caused the price declines. Also, existing “homeowners” with ARMs were seeing their rates increase at the beginning of this period, which is when we saw the steepest price declines. Once those short-term interest rates stabilized (thanks to govt intervention), we saw less distress.

——————

In your example #2:

Example #2: In late 2002 30-yr mortgage interest rates were at 6%. BY mid 2006 they were 6.5%.
Were home prices flat during that period ? No. They were quite bubblicious.

Rates were *effectively* going down during this time because people were moving from (higher) fixed-rate to (lower) adjustable-rate mortgages en masse, and the ultra-cheap neg-am loans were beginning to hit the market in larger numbers as well.

In essence, you can’t really look at 30-year mortgages and make assumptions about prices based on what those rates were doing. We have to look at what was happening in the mortgage market, in general, and look for changing trends to know what was really going on.
—————

Also, in your example #4, during the 70s and 80s, Baby Boomers began entering their peak buying years. Additionally, women were entering the workforce in unprecedented numbers, forcing prices up (IMHO, this is where all that “inflation” came from during the 70s and 80s). If interest rates hadn’t been rising during this time, prices would probably have skyrocketed even higher.

[Author]

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