WaPo Rising Interest rates stall market

[patb]

http://www.washingtonpost.com/business/economy/rising-interest-rates-slow-down-housing-sales/2014/03/21/567817fc-b037-11e3-9627-c65021d6d572_story.html?hpid=z4

The higher rates, soaring home prices and a tight inventory have kept potential buyers on the sidelines, hurting the sales of previously owned homes and undermining the recovery of the housing market, a huge contributor to economic growth. Homeowners who are reluctant to move and lose their low rates — a phenomenon that economists call interest rate “lock-in” — could slow the churn of home sales across the country.

A healthy turnover of homes is critical to a robust housing sector, enabling critical first-time home buyers to enter the market and existing homeowners to move or trade up. But housing experts worry that interest rates, which are expected to gradually rise to nearly 6 percent by late next year, will chill enthusiasm for home purchases. They say they’re already seeing signs of that, most recently among existing homeowners.

[Coronita]

If it were only true for the rental properties here in SD.

[Jazzman]

The one element that is consistently absent in these articles is price declines. It is completely incompatible with the current delusional mindset that home prices must always go up, or be forced up. I know there is plenty of evidence that suggests interest rates and home prices do not necessarily move in opposite directions, but it does no harm to give it a mention. If rates do go up, then homes become more affordable if prices go down. What is the problem with that? Many homes are over-priced anyway? If more inventory becomes available, whether from owners no longer being under water or foreclosures being pushed through more quickly, that could also put further pressure on prices. Now that WOULD be news worth celebrating! Perhaps then homes will be affordable in the normal sense of the word. We should be welcoming that, hoping for that, and trying to engineer that, not fearing it.

[urbanrealtor]

[quote=Jazzman]The one element that is consistently absent in these articles is price declines. It is completely incompatible with the current delusional mindset that home prices must always go up, or be forced up. I know there is plenty of evidence that suggests interest rates and home prices do not necessarily move in opposite directions, but it does no harm to give it a mention. If rates do go up, then homes become more affordable if prices go down. What is the problem with that? Many homes are over-priced anyway? If more inventory becomes available, whether from owners no longer being under water or foreclosures being pushed through more quickly, that could also put further pressure on prices. Now that WOULD be news worth celebrating! Perhaps then homes will be affordable in the normal sense of the word. We should be welcoming that, hoping for that, and trying to engineer that, not fearing it.[/quote]

While I do not disagree, I think your point misses a much bigger point in housing.
Specifically, housing in the US is a finance market more than a property market.
The effective demand is best understood in terms of payments rather than in prices.
That is why dropping prices in 92105 by 55% was not enough to get things selling in 2009.
Even at the dramatically lower prices, the lack of loans made those places not affordable.

[scaredyclassic]

[quote=urbanrealtor][quote=Jazzman]The one element that is consistently absent in these articles is price declines. It is completely incompatible with the current delusional mindset that home prices must always go up, or be forced up. I know there is plenty of evidence that suggests interest rates and home prices do not necessarily move in opposite directions, but it does no harm to give it a mention. If rates do go up, then homes become more affordable if prices go down. What is the problem with that? Many homes are over-priced anyway? If more inventory becomes available, whether from owners no longer being under water or foreclosures being pushed through more quickly, that could also put further pressure on prices. Now that WOULD be news worth celebrating! Perhaps then homes will be affordable in the normal sense of the word. We should be welcoming that, hoping for that, and trying to engineer that, not fearing it.[/quote]

While I do not disagree, I think your point misses a much bigger point in housing.
Specifically, housing in the US is a finance market more than a property market.
The effective demand is best understood in terms of payments rather than in prices.
That is why dropping prices in 92105 by 55% was not enough to get things selling in 2009.
Even at the dramatically lower prices, the lack of loans made those places not affordable.[/quote]

I resisted this concept. I now embrace it grudingly. Price is meaningless. What you pay each month is all that matters.

[CA renter]

[quote=scaredyclassic]

I resisted this concept. I now embrace it grudingly. Price is meaningless. What you pay each month is all that matters.[/quote]

But price, along with interest rates, is what determines what you will pay each month.

[urbanrealtor]

[quote=CA renter][quote=scaredyclassic]

I resisted this concept. I now embrace it grudingly. Price is meaningless. What you pay each month is all that matters.[/quote]

But price, along with interest rates, is what determines what you will pay each month.[/quote]

Its not that its totally unrelated but that its a secondary (or tertiary) consideration in determining effective demand.

I frankly could give a shit about the overall price of the place I buy.
I know what people focus on but it makes no sense.

Lets take an example:

The price is 2 mil on a 3br/2BA place in NP (say Morley field near the park).

The loan is a 15 year IO at 1% (call it crazy seller financing)and you qualify for it.

The house is clearly overpriced but you would be fool not to buy it on those terms.

At that price you could get rich just renting it out.

The overall price here would be immaterial.

[scaredyclassic]

[quote=urbanrealtor][quote=CA renter][quote=scaredyclassic]

I resisted this concept. I now embrace it grudingly. Price is meaningless. What you pay each month is all that matters.[/quote]

But price, along with interest rates, is what determines what you will pay each month.[/quote]

Its not that its totally unrelated but that its a secondary (or tertiary) consideration in determining effective demand.

I frankly could give a shit about the overall price of the place I buy.
I know what people focus on but it makes no sense.

Lets take an example:

The price is 2 mil on a 3br/2BA place in NP (say Morley field near the park).

The loan is a 15 year IO at 1% (call it crazy seller financing)and you qualify for it.

The house is clearly overpriced but you would be fool not to buy it on those terms.

At that price you could get rich just renting it out.

The overall price here would be immaterial.[/quote]

I’m overstating things. I did used to think the price had some independent reality, like it was a number that really meant something in and of itself in a way unrelated to other numbers..

i was wrong..

20% of that number (the purchase price) meant something, actually, as that was the amount of cash i had to write a check for, to put 20% down.

but the total purchase price it is just a strange symbol , some theoretical sum conjured from the dark shadowy mists, like a flute song in dark eastern european woods..

The monthly payment is reality , something penciled out by pale men wearing green visors in brightly flourescent lit rooms; grim, sober reality….a number you see repeatedly in your bank account on the withdrawal side, a number you get used to. . reality. life.

i love my monthly payment. the more i think about it, get used to it, it’s a number that soothes me, a number that makes me feel like everythings going to be all right.

I still haven’tquite wrapped my head around the actual purchase price. it’s a number i have no feel or feelings for, it is distant, remote, uncommunicative, imposing.

the monthly payment is part of my daily life, a buddy, something I can easily get a grip on. the monthly payment is a number i pay, i like to pay, i actually enjoy paying it. when i pay the mortgage, i don’t think, goddamnit, now i gotta pay the mortgage? ! i think what a reasonable rpice, how happy i am to lvie here and pay this amount on these terms…. i am filled with happiness to pay it.

the purchase price is no more than a placemarker, a holder, a number that might possibly come into play in the future, if im still alive, not just a skeleton in the family library, in order to settle up.

who cares at that point? im dead. the purchase price is never going to matter to me probably, because i am never going to sell this house.

true the monthly payment is in some way related to the purchase price, but who cares. it might as well be related to the stars, or the tea leaves. don’t tell me about what it’s related to, for i do not care. all i should have cared about is what does it cost per month and what must i put down.

[CA renter]

I know that I’m probably not the norm, but the price means a lot to me. It will determine whether or not one can sell at a profit or loss at various points in the future (lows and peaks of the RE cycle), it can greatly affect one’s net worth, it determines how much that 20% down payment will be, and it will determine how in debt one is.

Personally, I hate debt; the closer I can get to zero, the better (positive/creditor-side is best), whether or not the debt is collateralized. Obviously, other people feel differently, and that’s why I’m always early when trying to determine when markets are peaking.

[scaredyclassic]

That is way too rational, future based and debt averse. There’s risk to running with the herd off a cliffbut straying too far from the herd is dangerous too

[scaredyclassic]

Life is for the living.

[CA renter]

[quote=scaredyclassic]That is way too rational, future based and debt averse. There’s risk to running with the herd off a cliffbut straying too far from the herd is dangerous too[/quote]

True. I rarely get the gains when markets are peaking. Always out way too early. Still, I’m comfortable with it. Don’t like extremes.

[scaredyclassic]

People are nuts!!!!

[Anonymous]

This high rates really soar. It is a big problem for us.

[The-Shoveler]

Fall prices financed with long term debt will kill any economy.

Look for that to be resisted at all costs.

Just my two cents.

Same thing applies to any debt, even student debt or gov debt.

[Author]

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