patrick.net

WookieMan says

You can work anywhere and make the same amount of money.

I can't.

Lawler: Mortgage Rates Have Surged Since the Federal Reserve Cut Interest Rates Last Month

From housing economist Tom Lawler:

Folks who expected that mortgages rates would decline when the Federal Reserve began cutting its federal funds rate target range have been dazed and confused over the last month and a half. Since the day before the Fed’s 50 bp reduction in its funds rate target on September 18, 30-year MBS yields have surged by 84 to 96 bp, while mortgage rates have jumped by 72 to 89 bp. At the same time intermediate- and longer-term Treasury yields have risen 53 to 67 bp.

There are two main reasons MBS and mortgage rates have risen by more than Treasury rates over this period. First, implied interest rate volatility has surged, as many market participants were caught off-guard by the string of unexpectedly strong economic releases (and slightly higher inflation releases) following the Fed’s rate decision. For example, the BofAML MOVE index, a measure if implied interest rate volatility derived from one-month options on Treasuries across the yield curve, increased from 101.58 on September 17 to 130.92 on October 28, its highest reading since October 30, 2023. (Mortgage investors effectively write a prepayment option to home borrowers, and as such higher implied interest rate volatility increases the premium over Treasuries that investors require to compensate them for prepayment risk.)

And second, MBS option-adjusted spreads, which were at the low-end of the “no Fed MBS intervention” range just prior to the Fed’s action, have since moved higher.

Based on an assessment of various measures, my best is that the neutral real interest rate in the US is between 1 ¾% to 2%. One of course needs to add inflation/inflation expectations to that range. If/when the Fed were to achieve its 2% inflation target, then the neutral nominal interest rate would be 3 ¾% to 4%.

Factor in a normal yield curve (longer rates higher than short rates), and a more normal spread from the 10-year yield to 30-year mortgage rates, and you can see why there is a new normal range for 30-year mortgages.

See from June 2023: Could 6% to 7% 30-Year Mortgage Rates be the "New Normal"? and an update in August 2023: The "New Normal" Mortgage Rate Range

https://calculatedrisk.substack.com/p/lawler-mortgage-rates-have-surged

Inflation Adjusted House Prices 1.5% Below 2022 Peak

Price-to-rent index is 8.1% below 2022 peak

It has been over 18 years since the bubble peak. In the August Case-Shiller house price index released on Tuesday, the seasonally adjusted National Index (SA), was reported as being 75% above the bubble peak in 2006. However, in real terms, the National index (SA) is about 11% above the bubble peak (and historically there has been an upward slope to real house prices). The composite 20, in real terms, is 3% above the bubble peak.

People usually graph nominal house prices, but it is also important to look at prices in real terms. As an example, if a house price was $300,000 in January 2010, the price would be $433,000 today adjusted for inflation (44% increase). That is why the second graph below is important - this shows "real" prices.

The third graph shows the price-to-rent ratio, and the fourth graph is the affordability index. The last graph shows the 5-year real return based on the Case-Shiller National Index.

Nominal House Prices

The first graph shows the monthly Case-Shiller National Index SA, and the monthly Case-Shiller Composite 20 SA in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) and the Case-Shiller Composite 20 index (SA) are both at all times highs. Both indexes increased in June.

Real House Prices

The second graph shows the same two indexes in real terms (adjusted for inflation using CPI).

In real terms (using CPI), the National index is 1.5% below the recent peak, and the Composite 20 index is 1.6% below the recent peak in 2022. Both indexes increased in August in real terms.

It has now been 27 months since the real peak in house prices. Typically, after a sharp increase in prices, it takes a number of years for real prices to reach new highs (see House Prices: 7 Years in Purgatory). There is nothing magic about “7 years”, it just made a good post title! Here is an update to the graph I included in that article:

In real terms, national house prices are 11.1% above the bubble peak levels. There is an upward slope to real house prices, and it has been over 18 years since the previous peak, but real prices are historically high.

https://calculatedrisk.substack.com/p/inflation-adjusted-house-prices-15-729

https://www.reddit.com/r/RealEstate/comments/1gg3k7r/looking_for_encouragement/

Bought a house in late 2021 for $365k, harder in conversations with realtors we will be lucky to sell our house between $345-$375k according to comps.

We need to move so badly to get back near family but can’t fathom taking that kind of financial hit.

I don’t want to lose money on our first house, we don’t need the funds to move but it would make a sizable difference to help with moving costs and our next down payment.

This is seriously depressing that everyone’s value has increased and ours has flatlined or fallen off the cliff. I’m so stressed and really need some words of encouragement.

zzyzzx says

https://www.reddit.com/r/RealEstate/comments/1gg3k7r/looking_for_encouragement/

Bought a house in late 2021 for $365k, harder in conversations with realtors we will be lucky to sell our house between $345-$375k according to comps.

We need to move so badly to get back near family but can’t fathom taking that kind of financial hit.

I don’t want to lose money on our first house, we don’t need the funds to move but it would make a sizable difference to help with moving costs and our next down payment.

This is seriously depressing that everyone’s value has increased and ours has flatlined or fallen off the cliff. I’m so stressed and really need some words of encouragement.

Yeah, at best you can break even if they bought the home in late 2021 to early 2022, unless the 30 Year mortgage rate drops to 5.5% or lower.

Also if possible, have the buyer assume the low rate mortgage. Another incentive to buyer is to offer to pay up to 4 discount points so that would lower the mortgage rate from 5.5% to 4.5%.

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Rates aren't going anywhere until prices drop is the reality. If there's no inventory and houses are still selling, why would a bank drop the rate? Banks borrow lower and won't drop rates until it messes with the bottom line and there's a flood of inventory. Both don't seem to be on the horizon.

zzyzzx says

Bought a house in late 2021 for $365k, harder in conversations with realtors we will be lucky to sell our house between $345-$375k according to comps.

Why don't they rent it out for now?

GNL says

The effect of ending the federal income tax would be the same as the government printing a bunch of money and spending it...INFLATION. That's all that would happen. Adding $$ doesn't add supply. If we want America to prosper, we need more supply of more things. It's as simple as that.

And a big fat beautiful tariff - charging foreigners extra for a space at our big shopping mall so that they end up insourcing or making it mostly here - is the way to do that.

The All-American, Founding Father approved tariff. A modest 20% - not the 32% we had historically - is a great start.

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Now selling for $331,000 which was close to "peak price or all time high price" set in early 2022: https://www.zillow.com/homedetails/1741-Annabellas-Dr-Panama-City-Beach-FL-32407/121153821_zpid/

It was bought by a Sweethome Properties LLC for $217,900 within the last couple of months through a foreclosure process.

Sweethome Properties, LLC
1280 ITHACA DR
Boulder, CO 80305
Contact: Baljinder Kaur
Title: Principal
Phone: (208) 585-1135
Website:
Sweethome Properties, LLC is the only company located at 1280 ITHACA DR, Boulder, CO 80305

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AD says

Now selling for $331,000 which was close to "peak price or all time high price" set in early 2022: https://www.zillow.com/homedetails/1741-Annabellas-Dr-Panama-City-Beach-FL-32407/121153821_zpid/

It was bought by a Sweethome Properties LLC for $217,900 within the last couple of months through a foreclosure process.

when the Patel's, Singh's and Gupta's come in as real estate investors then to me that means the market is at bottom

this is just a compliment to them as far as knowing the right time to buy as a real estate flipper and then sell

.

Ford's disastrous earnings. Lost over a billion on EVs. Ford Trucks getting lot rot as many are sitting for 2x the median income. Earl can't afford that.
https://www.youtube.com/watch?v=9HwDvt2eoJc

Big Multinats are losing their pricing power. Mortgage rates skyrocketing.

Let's keep it going. Trump should set Fed Home Loans BACK to 15 or 20 years, with 30 years only possible for well qualified buyers with at least $500k in income.

Make America Low Debt Again

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The Wolfman has a good article about housing prices : https://wolfstreet.com/2024/11/08/with-home-prices-way-too-high-more-and-more-people-profit-from-arbitraging-the-vast-cost-difference-between-renting-and-buying/

The way I figure for our townhome, the peak market price was set in early 2022 at $330,000 with a 3% rate for 30 year mortgage. We bought it in 2016 for around $185,000.

Based on a 10% drop in price for a 1% increase in the 30 year mortgage rate, the market price of our townhome should be 60% of $330,000, which is $198,000.

However, household income in our town has gone up about 25% since early 2022, so the market price would adjusted by 1.25 times $198,000, which is $247,500

Also our townhome going up about 4% a year in value, would mean the price should be $253,185.

Home prices historically have increased 4% a year on average based on research by Professor Robert Shiller.

,

AmericanKulak says

Ford Trucks getting lot rot as many are sitting for 2x the median income. Earl can't afford that.
https://www.youtube.com/watch?v=9HwDvt2eoJc

Big Multinats are losing their pricing power. Mortgage rates skyrocketing.

Let's keep it going. Trump should set Fed Home Loans BACK to 15 or 20 years, with 30 years only possible for well qualified buyers with at least $500k in income.

Make America Low Debt Again

I'm hoping worst case is that home prices stay steady or drop no more than 20% from peak while there are real annual gains in household income. That would carefully let the air out of the housing bubble.

No one can afford those F-150 trucks, and I'm looking at the Ford Maverick which is somewhat affordable.

Check out Invitation Homes stock price as its only about 7% above is 2019 price; granted it has a 3.3% annual dividend yield.

I'm not sure why the mortgage market is setting the 30 yr rate at ~7%.

I thought its pegged to ~1.5% above the 10 Yr Treasury, which is 4.3%; hence the 30 Yr mortgage rate should be 5.8%.

.

What's happening is that Japan and China are selling massive amounts of treasuries to shore up their currencies. The selling is of such an extent that it is pushing up Treasury Yields. Mortgages are just less liquid than Treasuries and price accordingly.

There is also the crowding out effect. Whereby, the current federal deficit spending is crowding out the ability for other market actors' debt to be sold at historical prices. (I still dunno why corporate spreads are so fucking tight except maybe that individual investors are crowding the space).

Misc says

There is also the crowding out effect.

Time to stop quantitative tightening (QT). Maybe even if the Fed adds to its balance sheet at a relatively lower rate by buying mortgage backed securities, that should help reduce the 30 Year mortgage rate down to 6%.

If I was buying a home, I'd buy 4 discount points to lower the mortgage rate from 6% to 5%.

.

The Fed has caused all kinds of problems with their hyper-active QE during the Covid scare. The Feds balance sheet is about $1 trillion negative value if they marked it to market. (The larger banks are sitting on losses of what ??? say $800 billion if they had to sell their long term treasuries and MBS). The Fed is now printing money to cover its negative cash flow instead of its usual ability of sending interest it collects to the Treasury.

We need more construction of residential units to alleviate the housing inflation, but that ain't gonna happen until the Fed QE's the mortgage market. The Fed based on its ivory tower thinking believes doing this will cause more inflation.

I have faith that Trump will prevail against this and will lower rates bigly.

.AD says

I'm not sure why the mortgage market is setting the 30 yr rate at ~7%.

Bond Vigilantes don't believe inflation is under control

AD says

Home prices historically have increased 4% a year on average based on research by Professor Robert Shiller.

Before or after inflation? 30-50% gainz in a short period are always unsustainable fake roids, either in the gym or in the housing market.

The great thing about his Index is that big jumps and crashes are directly attributable to Fed Policy. It appears the MBS buyers take the opposite view of the 50bp rate cut.

AmericanKulak says

AD says

Home prices historically have increased 4% a year on average based on research by Professor Robert Shiller.

Before or after inflation? 30-50% gainz in a short period are always unsustainable fake roids, either in the gym or in the housing market.

I think its 4% a year over a long timeline like +20 years. Its not inflation adjusted , its before inflation.

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Homeloaners are tempted to believe that ther modest post-inflation growth they were used to experiencing (say late 70s-late 90s getting a 9% post-inflation gain) was "finally correcting itself" to the "true" price by shooting up (90s-late 2000s, also mid 2010s-2020), which must be the true price because it makes them a winner. "Har, har, I was smart and brought tick tack shack and my investment is finally paying off."

In reality, 1-2%/YoY after inflation is the reasonable amount (not factoring in costly repairs like new roofs or replacing HVAC systems or major landscaping)

Another thing as to "Why now is different" is that Insurance and Property Taxes are skyrocketing from Florida to Texas to Arizona to even Kansas (where no massive growth can be attributed, nor any recent major disasters). It's becoming more and more expensive to own a home.

I suspect Insurance Companies are losing their shirt on commercial real estate post-COVID and the premium padding is not about hurricanes (which were below average frequency and strength over more than a decade) but due to underperforming office and retail space.

It's never been a better time to rent.

AD says

I think its 4% a year over a long timeline like +20 years. Its not inflation adjusted , its before inflation.

You may want to rethink that statement. Home prices going up when all else is equal is strictly due to inflation.

AmericanKulak says

to Texas to Arizona to even Kansas (where no massive growth can be attributed, nor any recent major disasters)

I've replaced two roofs in the past 5 years in San Antonio due to hail damage. And I'm one of the lucky ones. The entire region has had unusual hail (or seems to be anyway from what I've read) over the past decade.

It's been a killer for insurance companies.

I marked off where I started buying real estate and where I sold maui in 2024. Not because I'm some genius market timer that's just when I finally had the cash to buy. I stopped when I felt like I had plenty and needed to diversify.

All rentals, I've rented what I've actually lived in from 1992 to the present.

I would have done better if I had just stayed in the stock market but the real estate was a hedge in case I lost it all in the stock market.

I learned a lot too though so there is value there I guess.

HeadSet says

AD says

I think its 4% a year over a long timeline like +20 years. Its not inflation adjusted , its before inflation.

You may want to rethink that statement. Home prices going up when all else is equal is strictly due to inflation.

.



.

AD says

HeadSet says

AD says

I think its 4% a year over a long timeline like +20 years. Its not inflation adjusted , its before inflation.

You may want to rethink that statement. Home prices going up when all else is equal is strictly due to inflation.

.



.

Yes, but isn't that 4% "appreciation" just a reflection of inflation?

HeadSet says

Yes, but isn't that 4% "appreciation" just a reflection of inflation?

Yes. Tax free on a primary up to $500k married. Pretty damn good deal. Just don't overpay for real estate up front and know you're going to stay for a long time.

Investments you can depreciate. Yes you have to pay it back, but if you bought wisely your sale price should beat inflation and the payback. Besides starting a company, RE is probably the best avenue to wealth for the average person. It's just the average person has no fucking clue what they're doing.

HeadSet says

AD says

HeadSet says

AD says

I think its 4% a year over a long timeline like +20 years. Its not inflation adjusted , its before inflation.

You may want to rethink that statement. Home prices going up when all else is equal is strictly due to inflation.

.

.

Yes, but isn't that 4% "appreciation" just a reflection of inflation?

Yes, as far as consequently resulting in the inflation rate to increase (i.e., causes increase in housing cost aggregate of PCE and CPI).

I just want housing to be less virtually treated as an asset like stocks.

.

AmericanKulak says

The great thing about his Index is that big jumps and crashes are directly attributable to Fed Policy. It appears the MBS buyers take the opposite view of the 50bp rate cut.

I look at the +7% mortgage rate and compare to the PCE overall of 2.1% (i.e., annual inflation rate). They are not making much money at that rate, if they are making any money now selling mortgage loans.

And I think the Fed Funds Rate is now around 4.6%. So technically a bank borrows at 4.6% and charges 7% for a mortgage plus any fees like origination fee.

Our local bank lent us a 30 Yr mortgage at 3% (veteran affairs) in summer 2016 while the Fed Funds rate was 0.25%, and the loan origination fee was $800.

Probably took the bank loan officer no more than 4 hours to work our loan.

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AD says

So technically a bank borrows at 4.6% and charges 7% for a mortgage plus any fees like origination fee.

For some reason, I can still get 4.5% on savings account at a CU, and 3.8% on money market demand deposits at Discover. I presume that the credit union and Discover use that retail money to fund credit card loans and not mortgages.

HeadSet says

I presume that the credit union and Discover use that retail money to fund credit card loans and not mortgages.

Bingo. That's why they offer points, hotels and airfare. Get you to rack it up to pay interest once you cannot pay the balance. The spread on 4.6% to 24% CC interest is insane.

I'll take the tax free point money. I'm a unicorn though. Most people see "candy" and want to eat it and don't pay for it. "But I got points to stay at a Hilton for a night" and then didn't pay the balance. 2-3 months not paying the full balance, you just paid for that room.

Mortgages they're playing the CC game essentially. They then sell it off to Freddie and Fannie after they got their cut. They just have to make sure they have the deposits to loan. Most of them do now. You'll never end up after 2-3 years max with a servicer/bank that you did the original loan with. F & F are not in the billing business. They just give a cut to servicer's.

SoTex says

It's been a killer for insurance companies.

I'm still believing it's the utter destruction going on in downtown office rental. None of things are new or unheard of.

AmericanKulak says

I'm still believing it's the utter destruction going on in downtown office rental. None of things are new or unheard of

Yeah, that too. Also our decaying infrastructure.

SoTex says

AmericanKulak says

I'm still believing it's the utter destruction going on in downtown office rental. None of things are new or unheard of

Yeah, that too. Also our decaying infrastructure.

I bitch about cities, and haven't been to downtown Chicago for 3-4 years until the recent marathon. They're doing a good job for a massively blue city. Indiana aside, IL and WI have some of the best infrastructure because of freeze thaw. Roads go to shit in 5 years here and modern asphalt mix is shit. Indiana can eat shit. Worst roads in the country and expensive toll wise. CA comes in a close second and I don't know why.

Great Video from a Public Adjuster about insurance in Florida.
https://www.youtube.com/watch?v=hjBzIsGxeZE

"Snake Farm", "(American) Lack of Integrity" LOL.

Adjuster recommends NOT using Domestic-only Florida Insurers. Says Chubb is the best but only for higher end housing.

Also of interest:
https://www.insurancebusinessmag.com/us/news/property/florida-insurers-deny-nearly-half-of-hurricane-claims-ratings-agency-says-508765.aspx

60 Minutes episode referred to:
https://www.youtube.com/watch?v=j5re7zBzrJk

Make insurance optional again, or at least make it minimal and ban no fault, and watch premiums collapse and payouts rise. Free America from mandatory insurance.

SoTex says

Yeah, that too. Also our decaying infrastructure.

After watching the above video, it's mostly just corruption.

AmericanKulak says

After watching the above video, it's mostly just corruption.

You know, I should have considered that. Decaying / corrupt institutions.

I think this next Trump term is smack dab at the end of the so called 4th Turning.

It's going to be interesting...

Watched part of the first link. Talking on a YouTube channel as an insurance adjuster is a big no no unless you're selling it. Adjusters get fired over it. I have a friend that worked on a case against me and he didn't tell me until after it was settled. This guy was likely sales and talking about adjusters.

If it rains and your property floods, it's a flood. This is fact. The people in NC that got wiped out it was a flood. Likely didn't have separate flood insurance. If it "comes from the sky" it's home owners insurance and if it "comes from the ground" it's a flood. Where the fuck does water come from? The sky. He contradicted himself out of the gate showing he doesn't know what he's talking about.

Fact is people didn't pay for flood insurance. Most don't or have to unless they're in a 100 year flood plain. They'll have to repair or foreclose if they don't have the cash. Water in your property is a flood. No flood insurance there will be no payout. I could watch more, but I know bull shit when I hear or see it. I've experienced floods. I've had to deal with multiple insurance claims. Get the right protection and it's no problem. If it's too expensive don't live in that spot. Plenty of areas to live that have almost zero chance of flooding.

TL:DR - Mother nature and other humans are a bitch. Expect the worst and get the right coverage for any of your needs. Never had a claim denied.

Nature is a bitch about FAFO. Choose insurance protection accordingly - if it's too expensive, you're living in the wrong place.

Thing is when there is a disaster, the government is always dragged kicking and screaming to "Help those poor People".

Just look at those homeowners in the landslide in California.

Flood insurance simply reduces the cost to the government somewhat.