Ideas on how to use less energy (Advertisement)

Higher Interest Rates


By HousingBoom   Follow   Tue, 25 Dec 2012, 6:49pm   568 views   8 comments
Watch (1)   Share   Quote   Permalink   Like (1)   Dislike  

Does higher interest rates mean that home prices will fall?

If rates are at 9%, then is it safe to say that US home prices will fall 30%+ compared to today's interest rates?

Viewing Comments 1-8 of 8     Last »     See most liked comments

  1. taxee


    Follow
    Befriend
    88 threads
    466 comments
    El Cerrito, CA

    1   8:33pm Tue 25 Dec 2012   Share   Quote   Permalink   Like (2)   Dislike  

    Not if lending standards get relaxed again. It's bennie's toy box and he decides who plays with the toys.

  2. Kevin


    Follow
    Befriend
    41 threads
    2,655 comments

    2   4:02pm Wed 26 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    Interest rates will only rise if inflation rises. Inflation will cause higher prices.

    There is ample historical data on the subject.

  3. Goran_K


    Follow
    Befriend (4)
    31 threads
    2,192 comments
    Laguna Beach, CA

    3   4:11pm Wed 26 Dec 2012   Share   Quote   Permalink   Like (3)   Dislike (1)  

    If rates hit 9%, I would bet every cent I have right now that home pries would fall.

    It would not only take many of the investors OUT of real estate (pretty much half of the demand today), it would also have a huge effect on monthly payment for traditional buyers.

    Of course, if FHA started offering 0 down, $925,000 loans for anyone with at least a 500 FICO, then all bets are off.

  4. lostand confused


    Follow
    Befriend (9)
    330 threads
    2,458 comments

    4   4:55pm Wed 26 Dec 2012   Share   Quote   Permalink   Like (1)   Dislike  

    Goran_K says

    Of course, if FHA started offering 0 down, $925,000 loans for anyone with at least a 500 FICO, then all bets are off.

    Bernake might just do that and they might bring back no document loans. Just put zero down, get a "free" car when you buy, add closing costs to the 925k mortgage and make it interest only for the first five years!

  5. Patrick


    Follow
    Befriend (55)
    5,611 threads
    6,306 comments
    male
    Menlo Park, CA

    5   5:05pm Wed 26 Dec 2012   Share   Quote   Permalink   Like (3)   Dislike  

    Kevin says

    Interest rates will only rise if inflation rises. Inflation will cause higher prices.

    There is ample historical data on the subject.

    The mistake most people make there is assuming there is just one inflation rate.

    Different parts of the economy inflate at different rates. We lived through a period of very bad inflation in house prices. That was the housing bubble.

    Salary inflation remained low all that time though. House prices were able to rise only because lending standards were lowered, like taxee points out.

  6. 121212


    Follow
    Befriend
    83 threads
    687 comments
    male

    6   5:07pm Wed 26 Dec 2012   Share   Quote   Permalink   Like   Dislike  
  7. Kevin


    Follow
    Befriend
    41 threads
    2,655 comments

    7   5:58pm Wed 26 Dec 2012   Share   Quote   Permalink   Like (2)   Dislike  

    Goran_K says

    If rates hit 9%, I would bet every cent I have right now that home pries would fall.

    I'll take that bet.

    Patrick says

    The mistake most people make there is assuming there is just one inflation rate.

    Different parts of the economy inflate at different rates. We lived through a period of very bad inflation in house prices. That was the housing bubble.

    Salary inflation remained low all that time though. House prices were able to rise only because lending standards were lowered, like taxee points out.

    The price of houses went way up, but the cost of housing did not go up nearly as much. Negative amortization loans, interest-only, etc. made those ridiculous prices possible. For many people, buying a home was much cheaper than it had been in years past, despite constant or even slightly higher interest rates.

    In 2000, a 30 year FRM was about 8.5%. In 2007 an interest-only ARM was going for 5.5%..

    In 2000, median home price was $170,000. The payment on that 30 year FRM would be $1307.

    In 2007, median home price was $247,900. The interest-only payment on that was $1136.

    You can easily see this by looking at rents: Average of $602 in 2000, average of $802 in 2008. CPI would predict that 2008 rent at $745, which means that rents only increased at a rate less than 1% higher annualized than CPI.

    Overall inflation isn't going to move in the opposite direction of interest rates, period. If inflation becomes a problem, the banks (private and central alike) will do everything that they can to raise rates. Otherwise they'll lose their asses (of course I'll borrow $1M today and pay you back $900k next year!)

    The opposite is equally true; if inflation is very low (or negative), interest rates will drop; otherwise they will lose their asses (of course I'll deposit $1M today and withdraw $1.1M next year!)

    Anyway, I'll bet anybody $100,000 in gold bullion that there won't be any significant increase in interest rates or inflation (I'd consider 2% 'significant') over the next 2 years.

    I'd peg the risk of hyperinflation at zero. Betting on hyperinflation is a fantastic way to lose your ass, and pretending that there's some way to predict it happening is pure bullshit designed to sell books and newsletters.

    There are 50-60 examples of hyperinflation in recorded human history. You can identify every single one and see that they all have the same thing in common: Not a single one was the result of long-term trends in the finances of a wealthy, stable society. Post-war debts owed in gold, currency system changes following regime collapse, and wars in general cause it.

    In other words, in most places that have experienced hyperinflation, the inflation itself was a symptom of a societal collapse, not the cause of it.

    There's nothing about the present-day united states that is likely to cause societal collapse. Another recession? You betcha'. But we aren't fucking weimar germany.

    I really do hope you guys aren't making any real financial decisions on the assumption of hyperinflation, and this is just bullshitting. I can think of worse ways to plan your finances, but not many.

  8. zzyzzx


    Follow
    Befriend (10)
    679 threads
    5,962 comments
    Baltimore, MD

    8   9:01pm Thu 27 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    lostand confused says

    and make it interest only for the first five years

    And why would they even bother paying that when they can get 3 years of free rent instead?

HousingBoom is moderator of this thread.

Email

Username

Watch comments by email
Home   Tips and Tricks   Questions or suggestions? Mail p@patrick.net   Thank you for your kind donations

Page took 94 milliseconds to create.