High Interest rates replace high prices?

[no_such_reality]

Newblet, you’re somewhat right and somewhat wrong. Since you were in OC, you may recall the OC Register housing section had a set of charts. One was price over the last year, one was payment based on ‘standard’ loans. While pricing rocketed through the roof, the pricing barely moved.

Once the optional payment loans appeared in mass, the payment went even lower.

So you are right, interest rates may rocket upward once the “credit crunch” is over and the Fed returns to fighting inflation. All that will happen though is home pricing will go even lower.

When many on the board talk about prices falling 30%, 40% or so, they are making the comparison based on today’s interest rate environment and today’s rental pricing.

If rental pricing softens, the prices will have more downward pressure.

If interest rates increase, the prices will have more downward pressure too.

IrvineRenter on the IHB covered how the increases in the buyer’s loan terms accentuate the pricing loss. http://www.irvinehousingblog.com/2007/05/07/your-buyers-loan-terms/

To summarize for a short answer. In the current environment, median home price is $460K. It’s expected to correct, let’s say to fall $350K for example as ‘fair’ supportable price.

If interest rates rise to say 10%, instead of falling to $350K, the prices will fall to $240K. The reason is simple. The payments on $350K at 6% and the payment on $240K at 10% are the same.

The housing bubble is correcting because of affordability. If rates rise, affordability falls and home prices must correct further to restore affordability.

[Newblet]

I suppose it would make sense that high interest rates would apply ADDITIONAL downward pressure to already tanked prices. What doesn’t make sense is for someone making over the median household income to be priced out of the market.

[Newblet]

I suppose it would make sense that high interest rates would apply ADDITIONAL downward pressure to already tanked prices. What doesn’t make sense is for someone making over the median household income to be priced out of the market.

[Newblet]

I suppose it would make sense that high interest rates would apply ADDITIONAL downward pressure to already tanked prices. What doesn’t make sense is for someone making over the median household income to be priced out of the market.

[Newblet]

I suppose it would make sense that high interest rates would apply ADDITIONAL downward pressure to already tanked prices. What doesn’t make sense is for someone making over the median household income to be priced out of the market.

[Newblet]

I suppose it would make sense that high interest rates would apply ADDITIONAL downward pressure to already tanked prices. What doesn’t make sense is for someone making over the median household income to be priced out of the market.

[SD Realtor]

nsr that was well put. Interest rate shock would indeed rachet pricing down in an appropriate manner. My read is that pricing would be slow to respond at first, then catch up, maybe even overshoot a tad, then come back to the correlating interest rate environment. I would also agree that buying a lower priced home in a high interest rate environment is always better then a higher priced home in a low interest rate environment.

Beyond recurring carrying costs there is refinance opportunity sometime down the road, you already have a higher equity stake, and people who are saving or have saved cash are in a good position.

I also think it is not a question of if rates will rise but when… I think in order to get the economic house we all share back in order we need to do this… Unfortunately back in 03 I was spouting off that within a few years rates would HAVE to be higher…

How wrong I was…

[SD Realtor]

nsr that was well put. Interest rate shock would indeed rachet pricing down in an appropriate manner. My read is that pricing would be slow to respond at first, then catch up, maybe even overshoot a tad, then come back to the correlating interest rate environment. I would also agree that buying a lower priced home in a high interest rate environment is always better then a higher priced home in a low interest rate environment.

Beyond recurring carrying costs there is refinance opportunity sometime down the road, you already have a higher equity stake, and people who are saving or have saved cash are in a good position.

I also think it is not a question of if rates will rise but when… I think in order to get the economic house we all share back in order we need to do this… Unfortunately back in 03 I was spouting off that within a few years rates would HAVE to be higher…

How wrong I was…

[SD Realtor]

nsr that was well put. Interest rate shock would indeed rachet pricing down in an appropriate manner. My read is that pricing would be slow to respond at first, then catch up, maybe even overshoot a tad, then come back to the correlating interest rate environment. I would also agree that buying a lower priced home in a high interest rate environment is always better then a higher priced home in a low interest rate environment.

Beyond recurring carrying costs there is refinance opportunity sometime down the road, you already have a higher equity stake, and people who are saving or have saved cash are in a good position.

I also think it is not a question of if rates will rise but when… I think in order to get the economic house we all share back in order we need to do this… Unfortunately back in 03 I was spouting off that within a few years rates would HAVE to be higher…

How wrong I was…

[SD Realtor]

nsr that was well put. Interest rate shock would indeed rachet pricing down in an appropriate manner. My read is that pricing would be slow to respond at first, then catch up, maybe even overshoot a tad, then come back to the correlating interest rate environment. I would also agree that buying a lower priced home in a high interest rate environment is always better then a higher priced home in a low interest rate environment.

Beyond recurring carrying costs there is refinance opportunity sometime down the road, you already have a higher equity stake, and people who are saving or have saved cash are in a good position.

I also think it is not a question of if rates will rise but when… I think in order to get the economic house we all share back in order we need to do this… Unfortunately back in 03 I was spouting off that within a few years rates would HAVE to be higher…

How wrong I was…

[SD Realtor]

nsr that was well put. Interest rate shock would indeed rachet pricing down in an appropriate manner. My read is that pricing would be slow to respond at first, then catch up, maybe even overshoot a tad, then come back to the correlating interest rate environment. I would also agree that buying a lower priced home in a high interest rate environment is always better then a higher priced home in a low interest rate environment.

Beyond recurring carrying costs there is refinance opportunity sometime down the road, you already have a higher equity stake, and people who are saving or have saved cash are in a good position.

I also think it is not a question of if rates will rise but when… I think in order to get the economic house we all share back in order we need to do this… Unfortunately back in 03 I was spouting off that within a few years rates would HAVE to be higher…

How wrong I was…

[SD Realtor]

nsr that was well put. Interest rate shock would indeed rachet pricing down in an appropriate manner. My read is that pricing would be slow to respond at first, then catch up, maybe even overshoot a tad, then come back to the correlating interest rate environment. I would also agree that buying a lower priced home in a high interest rate environment is always better then a higher priced home in a low interest rate environment.

Beyond recurring carrying costs there is refinance opportunity sometime down the road, you already have a higher equity stake, and people who are saving or have saved cash are in a good position.

I also think it is not a question of if rates will rise but when… I think in order to get the economic house we all share back in order we need to do this… Unfortunately back in 03 I was spouting off that within a few years rates would HAVE to be higher…

How wrong I was…

[SHILOH]

Some taxes in the East Coast fund the ongoing maintenance due to the battering weather here and the age of structures. SD roads, infrastructure and property cost less to maintain because they are newer and the weather makes a difference. Paved roads in NE are full of cracks and potholes. Then there is everything that goes into public works around inclement weather. I think it’s harsher. In Massachusetts, there is no state tax on clothing.

[SHILOH]

Some taxes in the East Coast fund the ongoing maintenance due to the battering weather here and the age of structures. SD roads, infrastructure and property cost less to maintain because they are newer and the weather makes a difference. Paved roads in NE are full of cracks and potholes. Then there is everything that goes into public works around inclement weather. I think it’s harsher. In Massachusetts, there is no state tax on clothing.

[SHILOH]

Some taxes in the East Coast fund the ongoing maintenance due to the battering weather here and the age of structures. SD roads, infrastructure and property cost less to maintain because they are newer and the weather makes a difference. Paved roads in NE are full of cracks and potholes. Then there is everything that goes into public works around inclement weather. I think it’s harsher. In Massachusetts, there is no state tax on clothing.

[Author]

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