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Zillow believes rising mortgage rates will slow house sales OC Housing News
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2014 Jul 25, 12:56am 557 views 1 comment
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2014 Jul 25, 1:35am
I had a 1 hour chart with Stan Humphries 2 days ago ( Zillow Economist) on this topic and other housing issues. They just had their National Housing Forum in New York yesterday, next one in CA I will be invited to speak.
One topic that we discussed is that for decades the move up buyer has been able to purchase their home in a doward rate cycle after a few years.
That cycle has ended unless rates can pull out a high 2% low 3% handle in the upcoming years.
So the % cost of debt for the move up buyer will be more in the future than in the previous
This was one thing I saw here in So Cal in which I spoke to Kathleen Hays on Bloomberg Financial about.
That the total PITI level that move up buyers wanted to pay was higher than their comfort level, they could still buy but that shows first line stress in terms of PITI levels.
This is what I saw in first time home buyers back in 2012
Interview on Bloomberg
http://loganmohtashami.com/2014/05/16/bloomberg-financial-interview-on-health-of-the-housing-market-2014/
http://ochousingnews.com/blog/zillow-believes-rising-mortgage-rates-will-slow-home-sales/
In the absence of rising wages, when mortgage interest rates go up, one of two things will happen: either sales will fall, or prices will fall.
I recently wrote that higher mortgage interest rates would either slow sales or cause house prices to drop. Since most real estate analysts still consider declining home prices impossible, when forced to pick between the two potential outcomes, they pick slower home sales.
Assuming a consistent payment, higher mortgage rates decrease the size of the loan and reduce the amount borrowers can bid on real estate. While it is possible the federal reserve may print enough money to spark wage inflation, given the high levels of residual unemployment and a low labor participation rate, wage inflation is a long way off, almost certain to come later than rising mortgage rates. Therefore, if rising mortgage rates results in smaller loan balances, then either sales volumes will go down, or house prices will go down, or perhaps some combination of both. This isn’t speculation; it’s basic math.
Source: http://ochousingnews.com/blog/zillow-believes-rising-mortgage-rates-will-slow-home-sales/#ixzz38UaNmdsm
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