patrick.net

Marko,

In 2004 the 30 year FRM is around 6 percent and in 2008 it is still around 6 percent. So while the fed fund rate was 1.25 percent in 2004 and peaked at 5.25 percent in 2006 mortgage rates didn't have this increase.

I think the whole higher-rates=lower-prices thing should be taken as a short-term rule of thumb - meaning, if rates go up next month, expect home prices (all other things being held constant) to drop somewhat in a few months ... but not necessarily as much as a financed buyer's buying power drops because cash buyers will upset the relationship. Additionally, plenty of other factors can come into play - during the housing bubble, the popular believe was that home values were *always* rising and therefor rising interest rates should not worry home-seekers. Just my 2 cents - with rising rates right now, I expect an increase in downward price pressures in many markets, whatever the historical trends indicated by any graphs.

Also, when did LIAR loans come to be allowed? The saying is people buy based on monthly income. Back then people could lie about their income; so, the rates were not marked against real data. Today its different. Mortgage agents no longer are committing willful negligence.

IMHO, interest rate DROPS were part of the accelerant of the market 2001-2002. Along with the tax cuts, that got the market moving up in 2002-2003. This is obvious to me now but wasn't obvious to me at the time at all.

I actually helped my sister buy (down in LA in mid-2001 with good market timing) but was content to wait for the post-dotcom crash to continue in the SF bay area (I had a longer wait than I was expecting).

Nationally, once the market was moving up, the speculative premium (buy now or be priced out forever) got bigger and bigger, but as mentioned above the lending started getting sketchier and sketchier in the 2003-2006 timeframe.

10% down payments became zero down or even 103% LTV. Interest-only and negative-am pick-a-pay became BIG in the 2005-2006 timeframe -- ~40% of Salinas was negative-am during the bubble. Countrywide, Wamu were making a killing writing tons of suicide loans.

Securitization meant loan processors only had to find or dig up bodies to sign loan documents and they could get the loans funded regardless of credit quality or anything.

This clearly means that the previous decade's housing data should not be looked at for any kind of patterns going forward. Like Japan's momentary lapse of reason in the late 80s, it was really a one-off and AFAICT we're going to be continuing to chisel at its remnant valuations for the foreseeable future.

Household real estate valuation peaked at $22.7T in 2006:

3Q10: $16.5T
2009: $17.0T
2008: $17.5T (!)
2007: $20.9T
2006: $22.7T <--- peak bubble
2005: $22.0T
2004: $19.0T
2003: $16.1T
2002: $13.7T
2001: $12.5T

This clearly means that the previous decade’s housing data should not be looked at for any kind of patterns going forward. Like Japan’s momentary lapse of reason in the late 80s, it was really a one-off and AFAICT we’re going to be continuing to chisel at its remnant valuations for the foreseeable future.

That is a really good point.

pw says

This clearly means that the previous decade’s housing data should not be looked at for any kind of patterns going forward. Like Japan’s momentary lapse of reason in the late 80s, it was really a one-off and AFAICT we’re going to be continuing to chisel at its remnant valuations for the foreseeable future.
That is a really good point.

That was basically my point with the chart. It does not corellate interest rates with prices like many have estimated/speculated I am not sure how I can tell the gvmt to keep rates the lowest on record for too long so at what interest rate should I buy a house ?