patrick.net

All I know is....I am still collecting rents each and every montha and rates can go up or down.

robertoaribas says

I asked, "how long until I see those price decreases?" Was the question too complex for a moron like you? Just saying "in the future" doesn't answer it.

I think we will see higher rates, lower inventory, for several years. Prices aren't going to fall in that climate.

8% used to be pretty normal for home loans. 3% and 4% wasn't going to last forever.

Rew says

robertoaribas says

I asked, "how long until I see those price decreases?" Was the question too complex for a moron like you? Just saying "in the future" doesn't answer it.

I think we will see higher rates, lower inventory, for several years. Prices aren't going to fall in that climate.

8% used to be pretty normal for home loans. 3% and 4% wasn't going to last forever.

That used to be normal before everybody leveraged themselves to the hilt with cheap interest rates, FHA, and fraudulent loan applications. Also back then 3-4 x annual salary was considered max when rates were at 8%, these days 5x-10x is the new normal of leverage and wages - besides some tech salaries - ain't increasing. So if rates were to go higher and prices won't fall that would mean that the avg. leverage would increase even more - certainly possible but there is a breaking point and the higher the leverage the bigger and faster the drop.

robertoaribas says

I just want to know when I can come back here and call everyone a nitwit for those predictions!

The day that the interest rate paid on the debt starts creeping up you will say BOHICA AAAAAHHHHH

By about October we will get the month over month decline. By next July it will be a year over year decline.

Right now, the rates are gonna hurt the flippers who plan on selling to suckers, er, buyers using a mortgage. The buyers won't be able to pay as much nor qualify. The flippers will regret overbidding based on the numbers they figured a couple months ago. The numbers are off now.

Then along comes the tax assessor who will be raising taxes by 30% because prices went up that amount. Doubt you can raise your rents that much, especially now that rents are coming down because every other home has a rental sign(and rising rates take away renters money going towards bills). The long term holder just saw a big chunk of profit taken away. Maybe they can sell to another cash investor who wants to blow his wad on an asset that has yet to deleverage all the way, and a Fed that says deflation is the real threat. Makes sense?

Alas, rates don't matter, do they? Which totally explains why the Fed has been manipulating them lower.

Wall St tumbles on Fed’s stimulus plan

http://bit.ly/106djzP

robertoaribas says

You got a big rate increase.

3.7 up to 4 is a "big rate increase"? Were you alive in the 1980s?

Are people unaware that rates below 5% were pretty much unheard of before this decade?

Homeboy says

robertoaribas says

You got a big rate increase.

3.7 up to 4 is a "big rate increase"? Were you alive in the 1980s?

Are people unaware that rates below 5% were pretty much unheard of before this decade?

That's right, it is going to take a lot higher rate hikes to trim demand/ability of borrowers. But what is the mentality in the market this summer going to be with rising rates and low inventory?

"Find house fast and buy!"

Surely prices will fall ... errr ... wait ...

robertoaribas says

Already did, I wrote about this months ago. The market is going to slow down,
transactions will slow down, but prices are going to be slightly higher a year
from now. Even 5 percent rates is not as big an affect as the extreme drop off
in distressed inventory.

Same here. My take is interest rate rising to 5%-6% itself won't collapse the market. The real risk here is a credit event like 2008 which spikes the unemployment rate (and bring down the housing market.) You can see the cracks in the global market but my bet is the central banks and the governments won't let it happen this year. (Eventually it will but it is too early to call the timing.)

Mobi says

Same here. My take is interest rate rising to 5%-6% itself won't collapse the market. The real risk here is a credit event like 2008 which spikes the unemployment rate (and bring down the housing market.) You can see the cracks in the global market but my bet is the central banks and the governments won't let it happen this year. (Eventually it will but it is too early to call the timing.)

I have been reading some about predictions made by math guys having to do with the herd mentality and the rate of growth quickly becoming unsustainable. Point is that small changes in the interest rate can cause the 200 billion dollar debt service to become a trillion dollar debt service right quick. The results of that are not going to be small.

indigenous says

I have been reading some about predictions made by math guys having to do
with the herd mentality and the rate of growth quickly becoming unsustainable.
Point is that small changes in the interest rate can cause the 200 billion
dollar debt service to become a trillion dollar debt service right quick. The
results of that are not going to be small.

3% to 5% is not small change IMO and it will cause big problems for those who need to "rollover" their debt (like the debt service increase you mentioned.) However, house/mortgage owners generally don't need to rollover debts. They can stall the price simply by not selling so I predict no housing collapse. On the other hand, debt rollover is a routine for corporates and governments and the rate raise can give them a hard time so that is why I worry about a credit event. My bet is Fed will come back to hold down the rate if they are about to explode.

Tim Aurora says

And since the payment for the same house goes up, the rent goes up too.
Therefore as an investor who has alreday bought the house at 3.75 % , I actually
welcome the rate increase.

This is not entirely true. The rent generally correlates better to income, not the cost.

I need some mail to read.

I have noticed in the Los Angeles area people who bought around 2005 with and example price of 350k are now attempting to sell standard sale at around 275k.

Some people must like this very much.

Tim Aurora says

Mobi says

This is not entirely true. The rent generally correlates better to income, not the cost.

I agree but only partially. There is still a coorelation to the cost of owning the house which just went up. An investor would not buy and rent it unless he can make some money.

Again not true. Theres a large number of reasons someone might invest in a home including that they believe real estate will go up drastically. Not saying I agree with this logic, just that it exists.

Also, an investor probably could not predict falling rents as occurred in some areas in the early and mid 90's, and also again in 2009-2011. In this case, an investor might find themselves bleeding a bit for a short bit of time when rents do not match what the investor anticipated.

Mobi says

I have been reading some about predictions made by math guys having to do

with the herd mentality and the rate of growth quickly becoming unsustainable.

Point is that small changes in the interest rate can cause the 200 billion

dollar debt service to become a trillion dollar debt service right quick. The

results of that are not going to be small.

3% to 5% is not small change IMO and it will cause big problems for those who need to "rollover" their debt (like the debt service increase you mentioned.) However, house/mortgage owners generally don't need to rollover debts. They can stall the price simply by not selling so I predict no housing collapse. On the other hand, debt rollover is a routine for corporates and governments and the rate raise can give them a hard time so that is why I worry about a credit event. My bet is Fed will come back to hold down the rate if they are about to explode.

I'm talking about the debt service?

dodgerfanjohn says

Theres a large number of reasons someone might invest in a home including that
they believe real estate will go up drastically. Not saying I agree with this
logic, just that it exists.

Singing to the choir here in Los Angeles (Tarzana to be exact.)

I would like to add, for whatever reason, my property in Dallas has stayed within 10% of my purchase price in 2006. Go figure.

robertoaribas says

How long till I'm bankrupt ?

Doesn't it depend on when you sell? I mean, if you don't sell when housing prices drop and wait for a rebound, then the drop wouldn't affect you. Real estate isn't the most liquid asset. It's not like the Tesla stock I bought in March with my Bar Mitzvah money. I don't understand why you're gloating when you have no cash on hand. And live in Arizona.

If the banks were interested in making money off home loans again, they would raise the interest rates. And houses would start selling hand over fist. Nothing gets the fence sitters moving faster than the fear of being priced out forever.

Especially after it hit 8%, that's when the buying frenzy would really kick in. Because you would have Newsweek, CNN, Bloomberg, MSNBC, FOX and the Federal government telling you, to buy then would be a smart move. And lord knows the last thing American's want to seem is Stupid.

robertoaribas says

How long till I'm bankrupt ? How long till the epic housing price drop, below the last bottom?

These things are hard to predict, and housing is a very slow moving, illiquid market, especially on the way down.

What happens is that the interest rate increasing applies downwards pressure on the price. In markets where credit is used to buy most housing this pressure is much higher than, say, on the peninsula here where so many houses go for cash. The only statement we can make for sure, is that all else being equal, higher interest rates mean lower house prices, but the "all else being equal" is a huge caveat. Here in silicon valley, if the tech industry generates even more wealth, housing demand could raise prices faster than interest rate depresses them.

robertoaribas says

This is brainless gibberish

I'm sure you would have said the same thing to me in 2003.

robertoaribas says

six weeks since rates spiked up... Still ZERO sign of a slowdown in buying....

Didn't you guys promise me a housing collapse by now???

when can I expect it now?

6 weeks is a bit short if a significant slowdown where to happen, but REITs are quite showing signs of weakness, see SRS. It's going to be more interesting for sure.

robertoaribas says

pending listings in phoenix for the month of July went up 2.4% over July of 2012; While new listings for sale fell 0.2%..

Jes.. and there you have it... Phoenix RE market speaks for all other markets...

robertoaribas says

I'll keep an eye out for the signs of a collapse, and I'll keep an eye out for that comet that is coming. I wonder which one I'll see first?

Roberto,

in 2011 it took about 4-6 months after the rates dropped in August for activity to start picking up. I expect the same on the round trip back. Rates only got to these levels four weeks ago. I fully expect prices to be down 5-10% from the May/June peak by the end of the year early 2014. Also, I expect sales to decline even more year over year.

Yerobertoaribas says

you've got that seasonal factor working for you too..

Yes, I am aware of the seasonal factor. I can tell you where I was wrong. I thought that real estate would top out for different reasons even with rates staying lower. Now with rates moving the way they did, I am pretty sure of the outcome.

CaptainShuddup says

Nothing gets the fence sitters moving faster than the fear of being priced out forever.

I think by now fence sitters have realized they can't be priced out forever.
They just wait for the bubble to go bust, when one is forming.
At least the smart ones.

Rates have barely raised a little - through a act of remarkable market optimism - and already the mortgage purchase index has been down for 11 of the past 12 weeks.

Fence sitters jumping in?