Shadow inventory finally being released ?

[Scarlett]

[quote=SD Realtor]More often then not the homebuyer measures affordability by monthly payment as opposed to home price, (…) I The speculation about price depreciation is quite valid BUT I do not believe they will correlate to the rate hikes. How proportional will they be? I could not guess but once you hit investor return levels you will see the bottoms set for pricing. Again, I do not know what this is as it varies with each area. Similarly those who do not have 6 figure nest eggs to drop into homes will simply not be able to buy. They will not be able to afford the homes even with large price drops. I do believe the price drops will be there and will be nice to see. For those who have prepared correctly, they will get rewarded. For those who have an affordable payment locked in, they will be happy with the payment but unhappy with the depreciated asset and depending on the amount of depreciation they may not be able to sell without a loss.[/quote]

I believe you will be proven correct. Question is, when?

The prices drops will probably not be enough to compensate for the rate hikes when you look strictly at monthly payments. I think if the hike is big enough, we will see again more of the hybrid ARMs (5-7+ yr fixed rate) so again that will not help prices drop.

While I agree with 20% downpayment percentage-wise, I still think that being six figure for downpayment is quite a big chunk of money for the first time buyers (or people who sold their previous house without any gain – and their number will keep increasing). Of course one can go only 10% down and pay the PMI…I say it’s too large (amount-wise) in the current economy to put in an asset that has proven, gasp!, that it can actually depreciate substantially in few years (instead of doubling every, what, ten years?).

You say investor return levels will signal the bottom for prices. What is the minimum rent multiplier that is currently used by the investors – in areas like RB, PQ, Scripps?

[CA renter]

[quote=Scarlett]
The prices drops will probably not be enough to compensate for the rate hikes when you look strictly at monthly payments. I think if the hike is big enough, we will see again more of the hybrid ARMs (5-7+ yr fixed rate) so again that will not help prices drop.

While I agree with 20% downpayment percentage-wise, I still think that being six figure for downpayment is quite a big chunk of money for the first time buyers (or people who sold their previous house without any gain – and their number will keep increasing). Of course one can go only 10% down and pay the PMI…I say it’s too large (amount-wise) in the current economy to put in an asset that has proven, gasp!, that it can actually depreciate substantially in few years (instead of doubling every, what, ten years?).
[/quote]

Agree with you that there will be less money floating around for large down payments.

1. IMHO, one of the biggest reasons we’re seeing a lot of cash buyers is because interest rates are being held so painfully low. Investors are able to buy rentals or flips, and make a MUCH better return than what they are currently getting in savings or fixed income. If rates rise, I believe a lot of this money will disappear, as the housing market will have to compete with better returns on fixed income and savings.

2. If prices drop with rising interest rates, there will be less money from sales of starter homes (already happening, as starter neighborhoods were already decimated by late 2008). So, less money from the move-up market.

……..

As for those ARM mortgages, they were being pushed heavily during the bubble because of the historically low interest rates. If rates are low in the current period, they are more likely to go higher in the future. Lenders were using ARM products to shift this (rising) interest rate risk onto borrowers when rates were low. If rates are high (and lenders think rates are near the top), they will be more likely to want to lock-in those rates via fixed-rate product.

IMHO, while ARM loans will be available, in order to account for the rising rates, lenders will probably have higher starting rates, and/or raise caps on the increases over the life of the loan. They will want borrowers to qualify at the highest possible rate, because lenders will understand the risk of collateral price depreciation. This will affect what the buyers/borrowers can afford. Lenders might also increase down payment requirements for these loans to protect against the risk of depreciating collateral in a rising rate environment.

IOW, I’m not so sure that ARM products will give borrowers much more purchasing power if we begin to see rates rising rapidly.

Just a guess, but if I were a lender, that’s what I’d be doing.

[CA renter]

[quote=Scarlett]
The prices drops will probably not be enough to compensate for the rate hikes when you look strictly at monthly payments. I think if the hike is big enough, we will see again more of the hybrid ARMs (5-7+ yr fixed rate) so again that will not help prices drop.

While I agree with 20% downpayment percentage-wise, I still think that being six figure for downpayment is quite a big chunk of money for the first time buyers (or people who sold their previous house without any gain – and their number will keep increasing). Of course one can go only 10% down and pay the PMI…I say it’s too large (amount-wise) in the current economy to put in an asset that has proven, gasp!, that it can actually depreciate substantially in few years (instead of doubling every, what, ten years?).
[/quote]

Agree with you that there will be less money floating around for large down payments.

1. IMHO, one of the biggest reasons we’re seeing a lot of cash buyers is because interest rates are being held so painfully low. Investors are able to buy rentals or flips, and make a MUCH better return than what they are currently getting in savings or fixed income. If rates rise, I believe a lot of this money will disappear, as the housing market will have to compete with better returns on fixed income and savings.

2. If prices drop with rising interest rates, there will be less money from sales of starter homes (already happening, as starter neighborhoods were already decimated by late 2008). So, less money from the move-up market.

……..

As for those ARM mortgages, they were being pushed heavily during the bubble because of the historically low interest rates. If rates are low in the current period, they are more likely to go higher in the future. Lenders were using ARM products to shift this (rising) interest rate risk onto borrowers when rates were low. If rates are high (and lenders think rates are near the top), they will be more likely to want to lock-in those rates via fixed-rate product.

IMHO, while ARM loans will be available, in order to account for the rising rates, lenders will probably have higher starting rates, and/or raise caps on the increases over the life of the loan. They will want borrowers to qualify at the highest possible rate, because lenders will understand the risk of collateral price depreciation. This will affect what the buyers/borrowers can afford. Lenders might also increase down payment requirements for these loans to protect against the risk of depreciating collateral in a rising rate environment.

IOW, I’m not so sure that ARM products will give borrowers much more purchasing power if we begin to see rates rising rapidly.

Just a guess, but if I were a lender, that’s what I’d be doing.

[CA renter]

[quote=Scarlett]
The prices drops will probably not be enough to compensate for the rate hikes when you look strictly at monthly payments. I think if the hike is big enough, we will see again more of the hybrid ARMs (5-7+ yr fixed rate) so again that will not help prices drop.

While I agree with 20% downpayment percentage-wise, I still think that being six figure for downpayment is quite a big chunk of money for the first time buyers (or people who sold their previous house without any gain – and their number will keep increasing). Of course one can go only 10% down and pay the PMI…I say it’s too large (amount-wise) in the current economy to put in an asset that has proven, gasp!, that it can actually depreciate substantially in few years (instead of doubling every, what, ten years?).
[/quote]

Agree with you that there will be less money floating around for large down payments.

1. IMHO, one of the biggest reasons we’re seeing a lot of cash buyers is because interest rates are being held so painfully low. Investors are able to buy rentals or flips, and make a MUCH better return than what they are currently getting in savings or fixed income. If rates rise, I believe a lot of this money will disappear, as the housing market will have to compete with better returns on fixed income and savings.

2. If prices drop with rising interest rates, there will be less money from sales of starter homes (already happening, as starter neighborhoods were already decimated by late 2008). So, less money from the move-up market.

……..

As for those ARM mortgages, they were being pushed heavily during the bubble because of the historically low interest rates. If rates are low in the current period, they are more likely to go higher in the future. Lenders were using ARM products to shift this (rising) interest rate risk onto borrowers when rates were low. If rates are high (and lenders think rates are near the top), they will be more likely to want to lock-in those rates via fixed-rate product.

IMHO, while ARM loans will be available, in order to account for the rising rates, lenders will probably have higher starting rates, and/or raise caps on the increases over the life of the loan. They will want borrowers to qualify at the highest possible rate, because lenders will understand the risk of collateral price depreciation. This will affect what the buyers/borrowers can afford. Lenders might also increase down payment requirements for these loans to protect against the risk of depreciating collateral in a rising rate environment.

IOW, I’m not so sure that ARM products will give borrowers much more purchasing power if we begin to see rates rising rapidly.

Just a guess, but if I were a lender, that’s what I’d be doing.

[CA renter]

[quote=Scarlett]
The prices drops will probably not be enough to compensate for the rate hikes when you look strictly at monthly payments. I think if the hike is big enough, we will see again more of the hybrid ARMs (5-7+ yr fixed rate) so again that will not help prices drop.

While I agree with 20% downpayment percentage-wise, I still think that being six figure for downpayment is quite a big chunk of money for the first time buyers (or people who sold their previous house without any gain – and their number will keep increasing). Of course one can go only 10% down and pay the PMI…I say it’s too large (amount-wise) in the current economy to put in an asset that has proven, gasp!, that it can actually depreciate substantially in few years (instead of doubling every, what, ten years?).
[/quote]

Agree with you that there will be less money floating around for large down payments.

1. IMHO, one of the biggest reasons we’re seeing a lot of cash buyers is because interest rates are being held so painfully low. Investors are able to buy rentals or flips, and make a MUCH better return than what they are currently getting in savings or fixed income. If rates rise, I believe a lot of this money will disappear, as the housing market will have to compete with better returns on fixed income and savings.

2. If prices drop with rising interest rates, there will be less money from sales of starter homes (already happening, as starter neighborhoods were already decimated by late 2008). So, less money from the move-up market.

……..

As for those ARM mortgages, they were being pushed heavily during the bubble because of the historically low interest rates. If rates are low in the current period, they are more likely to go higher in the future. Lenders were using ARM products to shift this (rising) interest rate risk onto borrowers when rates were low. If rates are high (and lenders think rates are near the top), they will be more likely to want to lock-in those rates via fixed-rate product.

IMHO, while ARM loans will be available, in order to account for the rising rates, lenders will probably have higher starting rates, and/or raise caps on the increases over the life of the loan. They will want borrowers to qualify at the highest possible rate, because lenders will understand the risk of collateral price depreciation. This will affect what the buyers/borrowers can afford. Lenders might also increase down payment requirements for these loans to protect against the risk of depreciating collateral in a rising rate environment.

IOW, I’m not so sure that ARM products will give borrowers much more purchasing power if we begin to see rates rising rapidly.

Just a guess, but if I were a lender, that’s what I’d be doing.

[CA renter]

[quote=Scarlett]
The prices drops will probably not be enough to compensate for the rate hikes when you look strictly at monthly payments. I think if the hike is big enough, we will see again more of the hybrid ARMs (5-7+ yr fixed rate) so again that will not help prices drop.

While I agree with 20% downpayment percentage-wise, I still think that being six figure for downpayment is quite a big chunk of money for the first time buyers (or people who sold their previous house without any gain – and their number will keep increasing). Of course one can go only 10% down and pay the PMI…I say it’s too large (amount-wise) in the current economy to put in an asset that has proven, gasp!, that it can actually depreciate substantially in few years (instead of doubling every, what, ten years?).
[/quote]

Agree with you that there will be less money floating around for large down payments.

1. IMHO, one of the biggest reasons we’re seeing a lot of cash buyers is because interest rates are being held so painfully low. Investors are able to buy rentals or flips, and make a MUCH better return than what they are currently getting in savings or fixed income. If rates rise, I believe a lot of this money will disappear, as the housing market will have to compete with better returns on fixed income and savings.

2. If prices drop with rising interest rates, there will be less money from sales of starter homes (already happening, as starter neighborhoods were already decimated by late 2008). So, less money from the move-up market.

……..

As for those ARM mortgages, they were being pushed heavily during the bubble because of the historically low interest rates. If rates are low in the current period, they are more likely to go higher in the future. Lenders were using ARM products to shift this (rising) interest rate risk onto borrowers when rates were low. If rates are high (and lenders think rates are near the top), they will be more likely to want to lock-in those rates via fixed-rate product.

IMHO, while ARM loans will be available, in order to account for the rising rates, lenders will probably have higher starting rates, and/or raise caps on the increases over the life of the loan. They will want borrowers to qualify at the highest possible rate, because lenders will understand the risk of collateral price depreciation. This will affect what the buyers/borrowers can afford. Lenders might also increase down payment requirements for these loans to protect against the risk of depreciating collateral in a rising rate environment.

IOW, I’m not so sure that ARM products will give borrowers much more purchasing power if we begin to see rates rising rapidly.

Just a guess, but if I were a lender, that’s what I’d be doing.

[an]

[quote=CA renter]
1. IMHO, one of the biggest reasons we’re seeing a lot of cash buyers is because interest rates are being held so painfully low. Investors are able to buy rentals or flips, and make a MUCH better return than what they are currently getting in savings or fixed income. If rates rise, I believe a lot of this money will disappear, as the housing market will have to compete with better returns on fixed income and savings.[/quote]
I think you have that backward. If rates rises and assuming price doesn’t rise along w/ rates, I foresee even more cash buyers in areas where there are a lot of cash buyers right now. In Fresno for example, where there are a lot of cash deals for investment properties, right now, places that rent for $1k/month is selling for $60-90k. Assuming current rates for 5.25%, PITI is ~$400/month. If those properties doesn’t rise with rates and rates goes up to 8%, the PITI will be ~$500/month. The 3% increase in interest might push some investor to pay for the properties in cash instead of financing at a low interest. If they pay cash for that $60k-$90k, their ROI is between 13-20% before any tax write off or additional 1 time costs. Now, lets assume price goes down a little bit as rate rises, the ROI will be that much higher. So, I can see even more cash buyers.

[an]

[quote=CA renter]
1. IMHO, one of the biggest reasons we’re seeing a lot of cash buyers is because interest rates are being held so painfully low. Investors are able to buy rentals or flips, and make a MUCH better return than what they are currently getting in savings or fixed income. If rates rise, I believe a lot of this money will disappear, as the housing market will have to compete with better returns on fixed income and savings.[/quote]
I think you have that backward. If rates rises and assuming price doesn’t rise along w/ rates, I foresee even more cash buyers in areas where there are a lot of cash buyers right now. In Fresno for example, where there are a lot of cash deals for investment properties, right now, places that rent for $1k/month is selling for $60-90k. Assuming current rates for 5.25%, PITI is ~$400/month. If those properties doesn’t rise with rates and rates goes up to 8%, the PITI will be ~$500/month. The 3% increase in interest might push some investor to pay for the properties in cash instead of financing at a low interest. If they pay cash for that $60k-$90k, their ROI is between 13-20% before any tax write off or additional 1 time costs. Now, lets assume price goes down a little bit as rate rises, the ROI will be that much higher. So, I can see even more cash buyers.

[an]

[quote=CA renter]
1. IMHO, one of the biggest reasons we’re seeing a lot of cash buyers is because interest rates are being held so painfully low. Investors are able to buy rentals or flips, and make a MUCH better return than what they are currently getting in savings or fixed income. If rates rise, I believe a lot of this money will disappear, as the housing market will have to compete with better returns on fixed income and savings.[/quote]
I think you have that backward. If rates rises and assuming price doesn’t rise along w/ rates, I foresee even more cash buyers in areas where there are a lot of cash buyers right now. In Fresno for example, where there are a lot of cash deals for investment properties, right now, places that rent for $1k/month is selling for $60-90k. Assuming current rates for 5.25%, PITI is ~$400/month. If those properties doesn’t rise with rates and rates goes up to 8%, the PITI will be ~$500/month. The 3% increase in interest might push some investor to pay for the properties in cash instead of financing at a low interest. If they pay cash for that $60k-$90k, their ROI is between 13-20% before any tax write off or additional 1 time costs. Now, lets assume price goes down a little bit as rate rises, the ROI will be that much higher. So, I can see even more cash buyers.

[an]

[quote=CA renter]
1. IMHO, one of the biggest reasons we’re seeing a lot of cash buyers is because interest rates are being held so painfully low. Investors are able to buy rentals or flips, and make a MUCH better return than what they are currently getting in savings or fixed income. If rates rise, I believe a lot of this money will disappear, as the housing market will have to compete with better returns on fixed income and savings.[/quote]
I think you have that backward. If rates rises and assuming price doesn’t rise along w/ rates, I foresee even more cash buyers in areas where there are a lot of cash buyers right now. In Fresno for example, where there are a lot of cash deals for investment properties, right now, places that rent for $1k/month is selling for $60-90k. Assuming current rates for 5.25%, PITI is ~$400/month. If those properties doesn’t rise with rates and rates goes up to 8%, the PITI will be ~$500/month. The 3% increase in interest might push some investor to pay for the properties in cash instead of financing at a low interest. If they pay cash for that $60k-$90k, their ROI is between 13-20% before any tax write off or additional 1 time costs. Now, lets assume price goes down a little bit as rate rises, the ROI will be that much higher. So, I can see even more cash buyers.

[an]

[quote=CA renter]
1. IMHO, one of the biggest reasons we’re seeing a lot of cash buyers is because interest rates are being held so painfully low. Investors are able to buy rentals or flips, and make a MUCH better return than what they are currently getting in savings or fixed income. If rates rise, I believe a lot of this money will disappear, as the housing market will have to compete with better returns on fixed income and savings.[/quote]
I think you have that backward. If rates rises and assuming price doesn’t rise along w/ rates, I foresee even more cash buyers in areas where there are a lot of cash buyers right now. In Fresno for example, where there are a lot of cash deals for investment properties, right now, places that rent for $1k/month is selling for $60-90k. Assuming current rates for 5.25%, PITI is ~$400/month. If those properties doesn’t rise with rates and rates goes up to 8%, the PITI will be ~$500/month. The 3% increase in interest might push some investor to pay for the properties in cash instead of financing at a low interest. If they pay cash for that $60k-$90k, their ROI is between 13-20% before any tax write off or additional 1 time costs. Now, lets assume price goes down a little bit as rate rises, the ROI will be that much higher. So, I can see even more cash buyers.

[Scarlett]

[quote=CA renter][As for those ARM mortgages, they were being pushed heavily during the bubble because of the historically low interest rates. If rates are low in the current period, they are more likely to go higher in the future. Lenders were using ARM products to shift this (rising) interest rate risk onto borrowers when rates were low. If rates are high (and lenders think rates are near the top), they will be more likely to want to lock-in those rates via fixed-rate product.

IMHO, while ARM loans will be available, in order to account for the rising rates, lenders will probably have higher starting rates, and/or raise caps on the increases over the life of the loan. They will want borrowers to qualify at the highest possible rate, because lenders will understand the risk of collateral price depreciation. This will affect what the buyers/borrowers can afford. Lenders might also increase down payment requirements for these loans to protect against the risk of depreciating collateral in a rising rate environment.

IOW, I’m not so sure that ARM products will give borrowers much more purchasing power if we begin to see rates rising rapidly.

Just a guess, but if I were a lender, that’s what I’d be doing.[/quote]

Yea, but unfortunately, the lenders are not like you. 🙂

I might be wrong, and SD R or sdr can tell, but when the rates were high for the 30 yr FRM, more people bought with ARMs – i.e. fixed rate for 5,7 yrs or 10 yrs, then adjustable rate. Many people sell within 7 years (on average), or at least used to. A 8% FRM is high, but it could go higher still (15% 30 yr FRM for example) so there is still risk of that.

I agree that, compared to the bubble time, the criteria WILL be more stringent for the ARMs, like better DTI ratio, higher down (but still no more than 20%), higher credit scores etc.

So when the rates for the 30 yr FRM will rise to 8%, a higher percentage of well qualified buyers will go for the ARMs instead, especially if they think they would either sell in 10 years, or re-fi to a lower rate in that interval. The monthly payment until then will be lower with those ARMs, so it will keep the buying power relatively the same.

[Scarlett]

[quote=CA renter][As for those ARM mortgages, they were being pushed heavily during the bubble because of the historically low interest rates. If rates are low in the current period, they are more likely to go higher in the future. Lenders were using ARM products to shift this (rising) interest rate risk onto borrowers when rates were low. If rates are high (and lenders think rates are near the top), they will be more likely to want to lock-in those rates via fixed-rate product.

IMHO, while ARM loans will be available, in order to account for the rising rates, lenders will probably have higher starting rates, and/or raise caps on the increases over the life of the loan. They will want borrowers to qualify at the highest possible rate, because lenders will understand the risk of collateral price depreciation. This will affect what the buyers/borrowers can afford. Lenders might also increase down payment requirements for these loans to protect against the risk of depreciating collateral in a rising rate environment.

IOW, I’m not so sure that ARM products will give borrowers much more purchasing power if we begin to see rates rising rapidly.

Just a guess, but if I were a lender, that’s what I’d be doing.[/quote]

Yea, but unfortunately, the lenders are not like you. 🙂

I might be wrong, and SD R or sdr can tell, but when the rates were high for the 30 yr FRM, more people bought with ARMs – i.e. fixed rate for 5,7 yrs or 10 yrs, then adjustable rate. Many people sell within 7 years (on average), or at least used to. A 8% FRM is high, but it could go higher still (15% 30 yr FRM for example) so there is still risk of that.

I agree that, compared to the bubble time, the criteria WILL be more stringent for the ARMs, like better DTI ratio, higher down (but still no more than 20%), higher credit scores etc.

So when the rates for the 30 yr FRM will rise to 8%, a higher percentage of well qualified buyers will go for the ARMs instead, especially if they think they would either sell in 10 years, or re-fi to a lower rate in that interval. The monthly payment until then will be lower with those ARMs, so it will keep the buying power relatively the same.

[Scarlett]

[quote=CA renter][As for those ARM mortgages, they were being pushed heavily during the bubble because of the historically low interest rates. If rates are low in the current period, they are more likely to go higher in the future. Lenders were using ARM products to shift this (rising) interest rate risk onto borrowers when rates were low. If rates are high (and lenders think rates are near the top), they will be more likely to want to lock-in those rates via fixed-rate product.

IMHO, while ARM loans will be available, in order to account for the rising rates, lenders will probably have higher starting rates, and/or raise caps on the increases over the life of the loan. They will want borrowers to qualify at the highest possible rate, because lenders will understand the risk of collateral price depreciation. This will affect what the buyers/borrowers can afford. Lenders might also increase down payment requirements for these loans to protect against the risk of depreciating collateral in a rising rate environment.

IOW, I’m not so sure that ARM products will give borrowers much more purchasing power if we begin to see rates rising rapidly.

Just a guess, but if I were a lender, that’s what I’d be doing.[/quote]

Yea, but unfortunately, the lenders are not like you. 🙂

I might be wrong, and SD R or sdr can tell, but when the rates were high for the 30 yr FRM, more people bought with ARMs – i.e. fixed rate for 5,7 yrs or 10 yrs, then adjustable rate. Many people sell within 7 years (on average), or at least used to. A 8% FRM is high, but it could go higher still (15% 30 yr FRM for example) so there is still risk of that.

I agree that, compared to the bubble time, the criteria WILL be more stringent for the ARMs, like better DTI ratio, higher down (but still no more than 20%), higher credit scores etc.

So when the rates for the 30 yr FRM will rise to 8%, a higher percentage of well qualified buyers will go for the ARMs instead, especially if they think they would either sell in 10 years, or re-fi to a lower rate in that interval. The monthly payment until then will be lower with those ARMs, so it will keep the buying power relatively the same.

[Scarlett]

[quote=CA renter][As for those ARM mortgages, they were being pushed heavily during the bubble because of the historically low interest rates. If rates are low in the current period, they are more likely to go higher in the future. Lenders were using ARM products to shift this (rising) interest rate risk onto borrowers when rates were low. If rates are high (and lenders think rates are near the top), they will be more likely to want to lock-in those rates via fixed-rate product.

IMHO, while ARM loans will be available, in order to account for the rising rates, lenders will probably have higher starting rates, and/or raise caps on the increases over the life of the loan. They will want borrowers to qualify at the highest possible rate, because lenders will understand the risk of collateral price depreciation. This will affect what the buyers/borrowers can afford. Lenders might also increase down payment requirements for these loans to protect against the risk of depreciating collateral in a rising rate environment.

IOW, I’m not so sure that ARM products will give borrowers much more purchasing power if we begin to see rates rising rapidly.

Just a guess, but if I were a lender, that’s what I’d be doing.[/quote]

Yea, but unfortunately, the lenders are not like you. 🙂

I might be wrong, and SD R or sdr can tell, but when the rates were high for the 30 yr FRM, more people bought with ARMs – i.e. fixed rate for 5,7 yrs or 10 yrs, then adjustable rate. Many people sell within 7 years (on average), or at least used to. A 8% FRM is high, but it could go higher still (15% 30 yr FRM for example) so there is still risk of that.

I agree that, compared to the bubble time, the criteria WILL be more stringent for the ARMs, like better DTI ratio, higher down (but still no more than 20%), higher credit scores etc.

So when the rates for the 30 yr FRM will rise to 8%, a higher percentage of well qualified buyers will go for the ARMs instead, especially if they think they would either sell in 10 years, or re-fi to a lower rate in that interval. The monthly payment until then will be lower with those ARMs, so it will keep the buying power relatively the same.

[Author]

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