Which is preferable: lower interest rates or lower prices?

[Huckleberry]

Excerpt from a Mr. Mortgage newsletter.

Now bond yields and mortgage rates are soaring, which is an affordability wild-card housing prices can’t handle. Most analysts and economists make their housing predictions based upon an average 30-year fixed rate over many years or the present rates, both of which are historically low and have been since 2003 (see chart below). Turning around this trade, with inflation levels that make owning Treasuries a money-losing proposition and rate overseas leading the way, maybe next to impossible. Rates are going up and arguably have been far too low for far too long.

In the past month, rates on a 30-yr fixed mortgage at no points have soared from 6% to 6.75%. When rates rise, affordability falls. Every .25% increase in mortgage rates takes away approximately 2.5% in purchasing power. Therefore, roughly 7.5% of purchasing power has evaporated in the past month. This, of course, varies from individual to individual, but assumes a household with a steady income buying at the maximum allowable debt-to-income ratios, which is typical.

People are focusing so much on the loss of loan programs and tightening of guidelines and have completely forgotten about one of the most basic of housing affordability factors, mortgage rates. This is, unless they plan to pay cash.

If rates climb back to levels last seen in 2000 and 2001 (7.5% to 8.5%), an additional 7.5%-12.5% purchasing power could evaporate. In the past, mortgage rates were a leading indicator for home prices and the health of the housing market in general. Now, that the days of free money and ‘heartbeat loans’ are over, ‘old-school’ factors like employment, income levels, interest rates, consumer sentiment and the health of the broader economy will have a significant influence once again.

Average 30-yr Rates at No Points

Today’s Rate 6.750%
YTD 2008 6.375%
2007 6.750%
2006 6.750%
2005 6.250%
2004 6.250%
2003 6.250%
2002 7.000%

[lonestar2000]

Buy when the price is low and interest is high.
Then refinance into a low interest rate, and you have the best of both worlds (low principal AND interest) and lower property taxes! 🙂

[lonestar2000]

Buy when the price is low and interest is high.
Then refinance into a low interest rate, and you have the best of both worlds (low principal AND interest) and lower property taxes! 🙂

[lonestar2000]

Buy when the price is low and interest is high.
Then refinance into a low interest rate, and you have the best of both worlds (low principal AND interest) and lower property taxes! 🙂

[lonestar2000]

Buy when the price is low and interest is high.
Then refinance into a low interest rate, and you have the best of both worlds (low principal AND interest) and lower property taxes! 🙂

[lonestar2000]

Buy when the price is low and interest is high.
Then refinance into a low interest rate, and you have the best of both worlds (low principal AND interest) and lower property taxes! 🙂

[Ren]

[quote=lonestar2000]Buy when the price is low and interest is high.
Then refinance into a low interest rate, and you have the best of both worlds (low principal AND interest) and lower property taxes! :)[/quote]

This is my plan too, but someone correct me if I’m wrong:

1) It could be many, many years before the interest rate is back to the 6’s and he can refinance. Meanwhile you’re paying that high interest (interest deduction helps, but not that much).

2) Can’t property value be reassessed and taxes reduced based on that? When or how often can this be done?

[Ren]

[quote=lonestar2000]Buy when the price is low and interest is high.
Then refinance into a low interest rate, and you have the best of both worlds (low principal AND interest) and lower property taxes! :)[/quote]

This is my plan too, but someone correct me if I’m wrong:

1) It could be many, many years before the interest rate is back to the 6’s and he can refinance. Meanwhile you’re paying that high interest (interest deduction helps, but not that much).

2) Can’t property value be reassessed and taxes reduced based on that? When or how often can this be done?

[Ren]

[quote=lonestar2000]Buy when the price is low and interest is high.
Then refinance into a low interest rate, and you have the best of both worlds (low principal AND interest) and lower property taxes! :)[/quote]

This is my plan too, but someone correct me if I’m wrong:

1) It could be many, many years before the interest rate is back to the 6’s and he can refinance. Meanwhile you’re paying that high interest (interest deduction helps, but not that much).

2) Can’t property value be reassessed and taxes reduced based on that? When or how often can this be done?

[Ren]

[quote=lonestar2000]Buy when the price is low and interest is high.
Then refinance into a low interest rate, and you have the best of both worlds (low principal AND interest) and lower property taxes! :)[/quote]

This is my plan too, but someone correct me if I’m wrong:

1) It could be many, many years before the interest rate is back to the 6’s and he can refinance. Meanwhile you’re paying that high interest (interest deduction helps, but not that much).

2) Can’t property value be reassessed and taxes reduced based on that? When or how often can this be done?

[Ren]

[quote=lonestar2000]Buy when the price is low and interest is high.
Then refinance into a low interest rate, and you have the best of both worlds (low principal AND interest) and lower property taxes! :)[/quote]

This is my plan too, but someone correct me if I’m wrong:

1) It could be many, many years before the interest rate is back to the 6’s and he can refinance. Meanwhile you’re paying that high interest (interest deduction helps, but not that much).

2) Can’t property value be reassessed and taxes reduced based on that? When or how often can this be done?

[Anonymous]

“2) Can’t property value be reassessed and taxes reduced based on that? When or how often can this be done?”

That can’t be done in California because of Prop 13. Assesed value can only go up by a small fixed percentage a year.

[Anonymous]

“2) Can’t property value be reassessed and taxes reduced based on that? When or how often can this be done?”

That can’t be done in California because of Prop 13. Assesed value can only go up by a small fixed percentage a year.

[Anonymous]

“2) Can’t property value be reassessed and taxes reduced based on that? When or how often can this be done?”

That can’t be done in California because of Prop 13. Assesed value can only go up by a small fixed percentage a year.

[Anonymous]

“2) Can’t property value be reassessed and taxes reduced based on that? When or how often can this be done?”

That can’t be done in California because of Prop 13. Assesed value can only go up by a small fixed percentage a year.

[Author]

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