More common sense for buyers

[cr]

Thanks for the advice SD R.

I’d like to look into the agent thing more. I’ll ask around in my area.

I noticed you work all the way up to Wildomar. I grew up there and still have family so I’ll recommend them to your site if and when they end up buying or selling.

Porter Ranch is a good example of an area up here in the valley that depsite claims of there being no room to grow in LA, they still find ways to sock in a thousand new homes.

Maybe one day I’ll be able to afford one.

Thanks again.

[cr]

Thanks for the advice SD R.

I’d like to look into the agent thing more. I’ll ask around in my area.

I noticed you work all the way up to Wildomar. I grew up there and still have family so I’ll recommend them to your site if and when they end up buying or selling.

Porter Ranch is a good example of an area up here in the valley that depsite claims of there being no room to grow in LA, they still find ways to sock in a thousand new homes.

Maybe one day I’ll be able to afford one.

Thanks again.

[(former)FormerSanDiegan]

If anyone here can predict the future direction of interest rates, there’s a 7-figure job waiting for you in Manhattan.

[(former)FormerSanDiegan]

If anyone here can predict the future direction of interest rates, there’s a 7-figure job waiting for you in Manhattan.

[no_such_reality]

Mortgage rate movements slowly push people out of the market. Dramatic rate moves push more, but rates typically trickle up/down 1/8th or 1/4 pt.

Even at our highly leveraged point, a 1/2 pt. move only requires an extra $140/month. If the seller gives a little (2.5%) and the buyer sucks it up a little ($50/month) you get the same payment. IMHO, the bulk of people buy based on payment, not potential capital outlay.

Interest rates can move from 6.5% to 8.5% and long term payment after taxes are the same if the price comes down 10%. In my experience, people aren’t going to overly quibble about an extra $50/month on a payment that is already $2600. If interest rates rocket to 10%, a 20% price drop puts everything back to par on payments, both before and after income tax breaks.

Interest rate hikes aren’t going to crash the bubble, credit tighening and lack of appreciation will prevent people from getting 1% loans that will crash the bubble.

[no_such_reality]

Mortgage rate movements slowly push people out of the market. Dramatic rate moves push more, but rates typically trickle up/down 1/8th or 1/4 pt.

Even at our highly leveraged point, a 1/2 pt. move only requires an extra $140/month. If the seller gives a little (2.5%) and the buyer sucks it up a little ($50/month) you get the same payment. IMHO, the bulk of people buy based on payment, not potential capital outlay.

Interest rates can move from 6.5% to 8.5% and long term payment after taxes are the same if the price comes down 10%. In my experience, people aren’t going to overly quibble about an extra $50/month on a payment that is already $2600. If interest rates rocket to 10%, a 20% price drop puts everything back to par on payments, both before and after income tax breaks.

Interest rate hikes aren’t going to crash the bubble, credit tighening and lack of appreciation will prevent people from getting 1% loans that will crash the bubble.

[SD Realtor]

Good post NSR. I agree with it.. However, I can tell you I have seen cases where buyers have backed out because of little swings like that. Yes those cases and far and few between and exceptions to the rule.

One thing though, which again was my intended point of the post. The builders float period is monsterous. Just think about people who signed a purchase agreement in March for a phase that will be completed in June or July. They are pretty screwed right? Also I am sure that neither the sales agent or the preferred lenders loan officer went over different loan payment scenarios based on rate changes. Sometimes deception is made by silence right?

One of the posts recently made was the case of a buyer backing out because of the different payment. Note that I entirely agree with you that the increased payment may not be much… yet it is enough to push the buyer out the door. Now you and I know it really pushed the buyer out the door because the buyer finally realizes it was a bad decision to begin with… not because the buyer has to fork out a little more each month. In these cases, the rate hike is a blessing in disguise.

[SD Realtor]

Good post NSR. I agree with it.. However, I can tell you I have seen cases where buyers have backed out because of little swings like that. Yes those cases and far and few between and exceptions to the rule.

One thing though, which again was my intended point of the post. The builders float period is monsterous. Just think about people who signed a purchase agreement in March for a phase that will be completed in June or July. They are pretty screwed right? Also I am sure that neither the sales agent or the preferred lenders loan officer went over different loan payment scenarios based on rate changes. Sometimes deception is made by silence right?

One of the posts recently made was the case of a buyer backing out because of the different payment. Note that I entirely agree with you that the increased payment may not be much… yet it is enough to push the buyer out the door. Now you and I know it really pushed the buyer out the door because the buyer finally realizes it was a bad decision to begin with… not because the buyer has to fork out a little more each month. In these cases, the rate hike is a blessing in disguise.

[SDowner]

The rate hikes adds more pressure to the bubble. It will make it burst faster. The rate hikes make it very difficult for people already stretched out in their 3 and 5 ARMs to refi to 30-year or 15-year or sell during this depreciating scenario, especially the prime borrowers who got sucked into the bubble.

[SDowner]

The rate hikes adds more pressure to the bubble. It will make it burst faster. The rate hikes make it very difficult for people already stretched out in their 3 and 5 ARMs to refi to 30-year or 15-year or sell during this depreciating scenario, especially the prime borrowers who got sucked into the bubble.

[Alex_angel]

When people are stretching themselves as tight as possible to make a $2600 or a $4500 a month payment, yes $50-$100 more is a lot. That right there is the difference of buying a little extra food, buying a little extra gas, or buying a little extra anything without having to charge it to your credit card.

[Alex_angel]

When people are stretching themselves as tight as possible to make a $2600 or a $4500 a month payment, yes $50-$100 more is a lot. That right there is the difference of buying a little extra food, buying a little extra gas, or buying a little extra anything without having to charge it to your credit card.

[no_such_reality]

When people are stretching themselves as tight as possible to make a $2600 or a $4500 a month payment, yes $50-$100 more is a lot.

I don’t think you’re following me. Our prices aren’t where they are at because we can pay $2600 for a townhome instead of a $2650. Or pay $4500 instead fo $4600 for La Costa.

It’s because we can pay $1250 for the townhome and $2500 for La Costa courtesy of the low teasers and Option ARMs.

A few will drop out as that $2600 goes to $2650 because they were really planning on $2400. And I agree, even minor rate increases wrecks new home developments. But for housing in general, 80% of the homes haven’t been using conventional loans.

The switch from non-conventional to conventional funding isn’t a $50/month hop, it’s a $1500 to $2500 a month increase. And that will drop 80% of the buyers out of the market.

[no_such_reality]

When people are stretching themselves as tight as possible to make a $2600 or a $4500 a month payment, yes $50-$100 more is a lot.

I don’t think you’re following me. Our prices aren’t where they are at because we can pay $2600 for a townhome instead of a $2650. Or pay $4500 instead fo $4600 for La Costa.

It’s because we can pay $1250 for the townhome and $2500 for La Costa courtesy of the low teasers and Option ARMs.

A few will drop out as that $2600 goes to $2650 because they were really planning on $2400. And I agree, even minor rate increases wrecks new home developments. But for housing in general, 80% of the homes haven’t been using conventional loans.

The switch from non-conventional to conventional funding isn’t a $50/month hop, it’s a $1500 to $2500 a month increase. And that will drop 80% of the buyers out of the market.

[patientrenter]

Rustico,

What kind of nerd am I? 5’8″, blue eyes, insomniac….

I design and price retail financial products (that are not mortgages). I also initiate opportunistic wholesale purchases of bonds to support a portion of those retail sales. I strongly believe most people should not try to time the bond market for profit. Do it for amusement, but not if you expect to profit from it.

The two rules of thumb I gave for comparing levels of uncertainty about future long bond rates are, unfortunately, about as far as one can go without pulling in far more complex mathematical tools. And the rules of thumb are imperfect simplifications. Sorry.

Where does the square root come from? I said that the amount of unecertainty in a future long bond interest rate roughly varies with the square root of the time from now until that future time, if the time is short enough. Rather than pulling in the general theory, I’ll give a plausibility argument using a simple example. I hope it’s not too mysterious or mathematical. (For those familiar with stats, the key fact is that the standard deviation of the sum of N independent, identically distributed random variables is the square root of N times the standard deviation of one of the random variables.)

Here’s the illustrative example. The change in the long bond rate from now (June 16) to July 16 will be the sum of the daily changes on each of the 20 or so trading days from now until then. We don’t know the change next Monday, but we have some idea from experience how likely an increase or decrease of any amount is. A first approximation to the truth is to assume that the same likelihoods apply to Tuesday and all the other trading days. Another approximation to the truth is that the amount of change that occurs on one day has no impact on the amount of change that occurs on subsequent days (which is clearly not completely true, but look at the results before jumping to conclusions).

Next comes the mysterious math (statistics): The amount of variation in something uncertain that is itself the sum of N other uncertain pieces that all look alike, and that do not depend on each other, is equal to the square root of N times the amount of variation in any one of the pieces. (Read standard deviation for amount of variation, if you like stats)

Applying the math to the daily changes in the long bond rate from now until July 16, a first approximation to the truth is that the amount of possible variation in long bond rates from now until July 16 is the square root of 20 (about 4.5 according to my mental math) times the amount of possible variation we now expect to see on Monday.

So if you are considering a possible 10bp change on Monday, a change of 45bp is about as likely over the next month. I hope that sounds like a reasonable result to you, and it comes in spite of all the imperfections we had to paper over along the way.

How likely is a 10bp move either way on Monday? You can learn more about the likelihood of various amounts of daily change by looking at actual historical daily changes over the last year or longer. (If you’re really interested, a good internet source is the H.15 report updated daily by the Fed.)

OK, that’s probably more than enough technicality for you and 99% of the readers here. Hopefully it shed some light, or at least didn’t give you a headache.

Patient renter in OC

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