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Ten Reasons It's A Terrible Time To Buy An Expensive House


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2015 Jul 11, 12:58pm   938,620 views  448 comments

by Patrick   ➕follow (60)   💰tip   ignore  



  1. Because house prices in expensive areas still dangerously high compared to incomes and rents. Banks say a safe mortgage is a maximum of 3 times the buyer's annual income with a 20% downpayment. Landlords say a safe price is set by the rental market; annual rent should be at least 9% of the purchase price, or else the price is just too high. Yet in affluent areas, both those safety rules are still being violated. Buyers are still borrowing 6 times their income with tiny downpayments, and gross rents are still only 3% of purchase price. Renting is a cash business that proves what people can really pay based on their salary, not how much they can borrow. Salaries and rents prove that affluent neighborhoods are still in a huge housing bubble, and that bubble seems to be getting more dangerous by the day.


    2. On the other hand, in some poor neighborhoods, prices are now so low that gross rents may exceed 10% of price. Housing is a bargain for buyers there. Prices there could still fall yet more if unemployment rises or interest rates go up, but those neighborhoods have no bubble anymore.

  2. Because it's usually still much cheaper to rent than to own the same size and quality house, in the same school district. In rich neighborhoods, annual rents are typically only 3% of purchase price while mortgage rates are 4% with fees, so it costs more to borrow the money as it does to borrow the house. Renters win and owners lose! Worse, total owner costs including taxes, maintenance, and insurance come to about 8% of purchase price, which is more than twice the cost of renting and wipes out any income tax benefit.

    The only true sign of a bottom is a price low enough so that you could rent out the house and make a profit. Then you'll know it's pretty safe to buy for yourself because then rent could cover the mortgage and ownership expenses if necessary, eliminating most of your risk. The basic buying safety rule is to divide annual rent by the purchase price for the house:

    annual rent / purchase price = 3% means do not buy, prices are too high

    annual rent / purchase price = 6% means borderline

    annual rent / purchase price = 9% means ok to buy, prices are reasonable

    So for example, it's borderline to pay $200,000 for a house that would cost you $1,000 per month to rent. That's $12,000 per year in rent. If you buy it with a 6% mortgage, that's $12,000 per year in interest instead, so it works out about the same. Owners can pay interest with pre-tax money, but that benefit gets wiped out by the eternal debts of repairs and property tax, equalizing things. It is foolish to pay $400,000 for that same house, because renting it would cost only half as much per year, and renters are completely safe from falling housing prices. Subtract HOA from rent before doing the calculation for condos.

    Although there is no way to be sure that rents won't fall, comparing the local employment rate (demand) to the current local supply of available homes for rent or sale (supply) should help you figure out whether a big fall in rents could happen. Checking these factors minimizizes your risk.


  3. Because it's a terrible time to buy when interest rates are low, like now. House prices rose as interest rates fell, and house prices will fall if interest rates rise without a strong increase in jobs, because a fixed monthly payment covers a smaller mortgage at a higher interest rate. Since interest rates have nowhere to go but up, prices have nowhere to go but down. When housing falls, you lose your equity, but not your debt.

    The way to win the game is to have cash on hand to buy outright at a low price when others cannot borrow very much because of high interest rates. Then you get a low price, and you get capital appreciation caused by future interest rate declines. To buy an expensive house at a time of low interest rates and high prices like now is a mistake.

    It is far better to pay a low price with a high interest rate than a high price with a low interest rate, even if the mortgage payment is the same either way.



    • A low price lets you pay it all off instead of being a debt-slave for the rest of your life.


    • As interest rates fall, real estate prices generally rise.


    • Your property taxes will be lower with a low purchase price.


    • Paying a high price now may trap you "under water", meaning you'll have a mortgage debt larger than the value of the house. Then you will not be able to refinance because then you'll have no equity, and will not be able to sell without a loss. Even if you get a long-term fixed rate mortgage, when rates inevitably go up the value of your property will go down. Paying a low price minimizes your damage.


    • You can refinance when you buy at a higher interest rate and rates fall, but current buyers will never be able to refinance for a lower interest rate in the future. Rates are already as low as they can go.






  4. Because buyers already borrowed too much money and cannot pay it back. They spent it on houses that are now worth less than the loans. This means most banks are still actually bankrupt. But since the banks have friends in Washington, they get special treatment that you do not. The Federal Reserve prints up bales of new money to buy worthless mortgages from irresponsible banks, slowing down the buyer-friendly deflation in housing prices and socializing bank losses.

    The Fed exists to protect big banks from the free market, at your expense. Banks get to keep any profits they make, but bank losses just get passed on to you as extra cost added on to the price of a house, when the Fed prints up money and buys their bad mortgages. If the Fed did not prevent the free market from working, you would be able to buy a house much more cheaply.

    As if that were not enough corruption, Congress authorized vast amounts of TARP bailout cash taken from taxpayers to be loaned directly to the worst-run banks, those that already gambled on mortgages and lost. The Fed and Congress are letting the banks "extend and pretend" that their mortgage loans will get

    paid back.

    And of course the banks can simply sell millions of bad loans to Fannie and Freddie at full price, putting taxpayers on the hook for the banks' gambling losses. Heads they win, tails you lose.

    It is necessary that YOU be forced deeply into debt, and therefore forced into slavery, for the banks to make a profit. If you pay a low price for a house and manage to avoid debt, the banks lose control over you. Unacceptable to them. It's all a filthy battle for control over your labor.

    This is why you will never hear the president or anyone else in power say that we need lower house prices. They always talk about "affordability" but what they always mean is debt-slavery.


  5. Because buyers used too much leverage. Leverage means using debt to amplify gain. Most people forget that debt amplifies losses as well. If a buyer puts 10% down and the house goes down 10%, he has lost 100% of his money on paper. If he has to sell due to job loss or a mortgage rate adjustment, he lost 100% in the real world.

    The simple fact is that the renter - if willing and able to save his money - can buy a house outright in half the time that a conventional buyer can pay off a mortgage. Interest generally accounts for more than half of the cost of a house. The saver/renter not only pays no interest, he also gets interest on his savings, even if just a little. Leveraged housing appreciation, usually presented as the "secret" to wealth, cannot be counted on, and can just as easily work against the buyer. In fact, that leverage is the danger that got current buyers into trouble.

    The higher-end housing market is now set up for a huge crash in prices, since there is no more fake paper equity from the sale of a previously overvalued property and because the market for securitized jumbo loans is dead. Without that fake equity, most people don't have the money needed for a down payment on an expensive house. It takes a very long time indeed to save up for a 20% downpayment when you're still making mortgage payments on an underwater house.

    It's worse than that. House prices do not even have to fall to cause big losses. The cost of selling a house is kept unfairly high because of the Realtor® lobby's corruption of US legislators. On a $300,000 house, 6% is $18,000 lost even if housing prices just stay flat. So a 4% decline in housing prices bankrupts all those with 10% equity or less.


  6. Because the housing bubble was not driven by supply and demand. There is huge supply because of overbuilding, and there is less demand now that the baby boomers are retiring and selling. Prices in the housing market, even now, are entirely a function of how much the banks are willing and able to lend. Most people will borrow as much as they possibly can, amounts that are completely disconnected from their salaries or from the rental value of the property. Banks have been willing to accomodate crazy borrowers because banker control of the US government means that banks do not yet have to acknowledge their losses, or can push losses onto taxpayers through government housing agencies like the FHA.


  7. Because there is still a massive backlog of latent foreclosures. Millions of owners stopped paying their mortgages, and the banks are still not forclosing on all of them, letting the owner live in the house for free. If a bank forecloses and takes possession of a house, that means the bank is responsible for property taxes and maintenance. Banks don't like those costs. If a bank then sells the foreclosure at current prices, the bank has to admit a loss on the loan. Banks like that cost even less. So there is a tsunami of foreclosures on the way that the banks are ignoring, for now. To prevent a justified foreclosure is also to prevent a deserving family from buying that house at a low price. Right now, those foreclosures will wash over the landscape, decimating prices, and benefitting millions of families which will be able to buy a house without a suicidal level of debt, and maybe without any debt at all!


  8. Because first-time buyers have all been ruthlessly exploited and the supply of new victims is very low.

    From The Herald:

    "We were all corrupted by the housing boom, to some extent. People talked endlessly about how their houses were earning more than they did, never asking where all this free money was coming from. Well the truth is that it was being stolen from the next generation. Houses price increases don't produce wealth, they merely transfer it from the young to the old - from the coming generation of families who have to burden themselves with colossal debts if they want to own, to the baby boomers who are about to retire and live on the cash they make when they downsize."

    House price inflation has been very unfair to new families, especially those with children. It is foolish for them to buy at current high prices, yet government leaders never talk about how lower house prices are good for American families, instead preferring to sacrifice the young and poor to benefit the old and rich, and to make sure bankers have plenty of debt to earn interest on. Your debt is their wealth. Every "affordability" program drives prices higher by pushing buyers deeper into debt. Increased debt is not affordability, it's just pushing the reckoning into the future. To really help Americans, Fannie Mae and Freddie Mac and the FHA should be completely eliminated. Even more important is eliminating the mortgage-interest deduction, which costs the government $400 billion per year in tax revenue. The mortgage interest deduction directly harms all buyers by keeping prices higher than they would otherwise be, costing buyers more in extra purchase cost than they save on taxes. The $8,000 buyer tax credit cost each buyer in Massachusetts an extra $39,000 in purchase price. Subsidies just make the subsidized item more expensive. Buyers should be rioting in the streets, demanding an end to all mortgage subsidies. Canada and Australia have no mortgage-interest deduction for owner-occupied housing. It can be done.

    The government pretends to be interested in affordable housing, but now that housing is becoming truly affordable via falling prices, they want to stop it? Their actions speak louder than their words.



  9. Because boomers are retiring. There are 70 million Americans born between 1945-1960. One-third have zero retirement savings. The oldest are 66. The only money they have is equity in a house, so they must sell. This will add yet another flood of houses to the market, driving prices down even more.


  10. Because there is a huge glut of empty new houses. Builders are being forced to drop prices even faster than owners, because builders must sell to keep their business going. They need the money now. Builders have huge excess inventory that they cannot sell at current prices, and more houses are completed each day, making the housing slump worse.




Next Page: Eight groups who lie about the housing market »



The Housing Trap

You're being set up to spend your life paying off a debt you don't need to take on, for a house that costs far more than it should. The conspirators are all around you, smiling to lure you in, carefully choosing their words and watching your reactions as they push your buttons, anxiously waiting for the moment when you sign the papers that will trap you and guarantee their payoff. Don't be just another victim of the housing market. Use this book to defend your freedom and defeat their schemes. You can win the game, but first you have to learn how to play it.

115 pages, $12.50Kindle version available

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89   MAGA   2015 Dec 29, 12:49pm  

11: You are buying a loan, not a home.

90   tatupu70   2015 Dec 29, 12:54pm  

jvolstad says

11: You are buying a loan, not a home.

Funny, when I leave work--I don't drive to my loan. I don't park my car in my loan. I don't sleep in my loan's master BR.

91   conservativethinker   2015 Dec 29, 2:01pm  

I have been a long time reader of Patrick and have been sticking with renting since 2007. Instead of buying a place, I put some of that money in the stock market...then the 2008 crash happened and I lost money. I took my money out of stocks/bonds and just kept it in the bank. I stuck with renting instead of buying in 2008 when house prices sank... and now they are up as much as they were up from 2003-2008. So, I basically timed everything horribly.

My simple question is this, if I was to just keep my potential housing down payment money in a savings account instead of putting it in the stock market, then is it still better to rent vs. buy now? I can get at best 1% return on the savings account and I'm not sure what the inflation rate is. And, I find the stock market just as risky as the real estate market right now. Both could crash.

And, if I had $400k, and I allocated $200k for a down payment on a house, and kept the other $200k in savings, is it still not wise to buy? If so, what is the logic there?

92   turtledove   2015 Dec 29, 2:16pm  

conservativethinker says

I can get at best 1% return on the savings account and I'm not sure what the inflation rate is. And, I find the stock market just as risky as the real estate market right now. Both could crash.

A 1% return is a ridiculous investment strategy. So yes, you need to do something else with your money. I sense that you are the type of person who is so terrified of a loss that you'd rather let inflation eat away at your principle than risk some catastrophic investment that wipes you out. Obviously, the worst case scenario could happen, but you really cannot live your life that way. That's kind of like shutting yourself up in the house because you are afraid of being mugged. Sure... a mugging is a possibility, but statistically speaking it's not very likely. You are going to have to take a chance on something, at some point or someday, your $400,000 risks turning into chump change.

93   conservativethinker   2015 Dec 29, 2:47pm  

turtledove says

I sense that you are the type of person who is so terrified of a loss that you'd rather let inflation eat away at your principle than risk some catastrophic investment that wipes you out.

That is probably pretty accurate :) But, I'm not totally terrified... I do have a decent amount of my 401k money in stocks, and I do own a condo that is being rented... but I'm mostly cash for now... waiting for a slightly less bubble-y environment in both real estate and stocks. I do want to diversify more, which is why I asked if in a hypothetical scenario if I had $400k of cash available, if investing $200k or $300k as a down payment on a house makes sense in this crazy housing environment.

94   FNWGMOBDVZXDNW   2015 Dec 29, 3:09pm  

IMO, owning one house is a neutral and safe position. Owning less than one is risky. The only reason not to own one house is the desire to be mobile. In your situation, owning and renting out a condo while renting a place to live sounds reasonable. Sitting on $400K in cash does not sound reasonable to me. It sounds way over-cautious. If you put it into stocks, you risk a downturn in the stock market. If that happens, taking money out after the crash would be shooting yourself in the foot. So putting money into stocks requires being willing to ride out a down market (and not use the money for a while). In other words, you have to be willing to not buy a house with 20 down in the near future. OTOH, in that instance, you could sell your condo, and use the proceeds as a down on a house.

95   conservativethinker   2015 Dec 29, 3:17pm  

Would the following justify buying an "expensive" home in today's climate based on some of the notes I provided previously:

- Keep the condo and keep renting it out
- Leave the 401k alone and keep the investments somewhat aggressive assuming retirement is 30yrs away
- Assume there is enough cash for 1yr in case of job loss
- If the left over is $400k as mentioned above, does it make sense to put 50% on a down payment on a new "expensive" home (where the rent would be 3% or purchase price)... and the other 50% in stocks/bonds... or is it better to put all 400k in stocks/bonds because according to Patrick, it's a terrible time to buy an expensive home (which I sort of agree with, but is it also a terrible time to put the would-be down payment money into stocks/bonds?)

96   FNWGMOBDVZXDNW   2015 Dec 29, 3:25pm  

conservativethinker says

but is it also a terrible time to put the would-be down payment money into stocks/bonds?)

I think it's not a great time to invest in a house or stocks, but you can't go back 7 years and invest then. It's now or later, and it's just worse to sit on a huge idle pile of cash unless you are trying to make a huge market timing bet. Study the local market, see if it makes sense for you. There are intangibles to consider. There is no right answer based on what you've given.

97   turtledove   2015 Dec 29, 3:32pm  

conservativethinker says

Would the following justify buying an "expensive" home in today's climate based on some of the notes I provided previously:

- Keep the condo and keep renting it out

- Leave the 401k alone and keep the investments somewhat aggressive assuming retirement is 30yrs away

- Assume there is enough cash for 1yr in case of job loss

- If the left over is $400k as mentioned above, does it make sense to put 50% on a down payment on a new "expensive" home (where the rent would be 3% or purchase price)... and the other 50% in stocks/bonds... or is it better to put all 400k in stocks/bonds because according to Patrick, it's a terrible time to buy an expensive home (which I sort of agree with, but is it also a terrible time to put the would-be down payment money into stocks/bonds?)

Personally, I don't think that it makes sense for you to put 50% down in a low-interest rate environment.

98   conservativethinker   2015 Dec 29, 3:35pm  

I live in Silicon Valley and you have to shell out 1.5m to get an okay house. So does it make sense to put all 400k on that house which is what would be required to get a house in that price range based on income, or do I just accept that I can't afford a house here and put all that 400k in stocks/bonds and keep saving until I can afford something?

99   turtledove   2015 Dec 29, 3:53pm  

conservativethinker says

I live in Silicon Valley and you have to shell out 1.5m to get an okay house. So does it make sense to put all 400k on that house which is what would be required to get a house in that price range based on income, or do I just accept that I can't afford a house here and put all that 400k in stocks/bonds and keep saving until I can afford something?

I don't know that any choice you make -- makes sense. We have crap shacks selling for millions... we have stocks valued at ridiculous amounts on companies with no earnings... None of it makes sense! Personally, I'd rather have my home. Why? I have kids, dogs, people who need some stability (which I know is just an illusion to some degree -- stability, not the kids and the dogs :-)). What I couldn't have was rents going through the roof, changing homes, changing schools, etc... So, for me, it made sense to buy the house. It froze my monthly house payment at an amount I could afford at the time, and over time, my monthly payment should become easier to afford as our earnings go up. We plan to stay long term, so we should be able to get some of the money back when we sell. We have a business here, so this plan should be possible. But no plan is foolproof. Someone might find a cure for infertility and then I'm out of business.

100   Strategist   2015 Dec 29, 5:47pm  

conservativethinker says

Would the following justify buying an "expensive" home in today's climate based on some of the notes I provided previously:

- Keep the condo and keep renting it out

- Leave the 401k alone and keep the investments somewhat aggressive assuming retirement is 30yrs away

- Assume there is enough cash for 1yr in case of job loss

- If the left over is $400k as mentioned above, does it make sense to put 50% on a down payment on a new "expensive" home (where the rent would be 3% or purchase price)... and the other 50% in stocks/bonds... or is it better to put all 400k in stocks/bonds because according to Patrick, it's a terrible time to buy an expensive home (which I sort of agree with, but is it also a terrible time to put the would-be down payment money into stocks/bonds?)

Buy a home with 20% down, and put the rest in stocks. You will be glad.

101   Patrick   2015 Dec 29, 7:27pm  

conservativethinker says

I live in Silicon Valley and you have to shell out 1.5m to get an okay house. So does it make sense to put all 400k on that house which is what would be required to get a house in that price range based on income, or do I just accept that I can't afford a house here and put all that 400k in stocks/bonds and keep saving until I can afford something?

actually it all depends on predicting the future well.

102   conservativethinker   2015 Dec 29, 8:04pm  

turtledove says

I don't know that any choice you make -- makes sense. We have crap shacks selling for millions... we have stocks valued at ridiculous amounts on companies with no earnings... None of it makes sense!

yeah everything is driven by fear

- Scared of another housing bust? Put the down payment money in the bank until housing prices come down
- Scared of getting only 0.02% on your savings and not being able to afford milk with the 400k in 10 yrs? Then put that money in the stock market
- Scared of losing everything in stocks? Then just buy the damn house

103   subtitle   2015 Dec 31, 12:32pm  

I'm a realtor in Florida and it's amazing to me to spend $1.5 M on an "OK" home in an overrated area. (I lived in Northern California earlier,)
For that money, you can buy a gorgeous home directly on the Gulf in a safe, low-crime area.

104   Tough   2016 Jan 6, 1:23am  

If there are more and more postings like these, then more and more hysteria will poke holes in the NAR opinion that there is a housing shortage. We are looking at identical conditions in 2005, 3% down, speculation, rental homes as investments, Wages not moving up. If things go south, "sell it for what you paid". We sold out home we had for 14 years and we sold it 18 months ago for $245K. I cry my self to sleep because we were hoping to take our appreciation and buy something bigger, but the prices outpaced our savings. Had we held onto the home, it would have sold for $289K today. I am hoping that we are in the identical situation as 2005. I am hoping for a crash, we rent and are sitting on dry powder. Will it happen? or will I be priced out of a home and my kids and I live in some single wide?

105   drew_eckhardt   2016 Jan 6, 12:08pm  

SFace says

Picture this scenario. I just opened a 500K line of credit to take care of my cash needs for 10 years in case TSHTF.

Banks can freeze lines of credit and reduce card limits to their outstanding balance when TSHTF.

106   Tough   2016 Jan 6, 1:06pm  

Here are the numbers: Watch what happens to payment when rates rise and home prices dips.

Bought today 1/6/16 $280,000 Purchase @ 4% 30year Payment= $1419.00
Bought 8/6/16 $260,000 Purchase @ 5% 30year Payment= $1396.00
Bought 4/7/17 $230,000 Purchase @ 6% 30year Payment= $1379.00
Bought 9/7/17 $199,000 Purchase @ 7% 30year Payment= $1324.00

The difference is $56,000 Down vs. $39,800 Down. Interest Rates will not effect your affordability.

107   tatupu70   2016 Jan 6, 1:37pm  

Tough says

Here are the numbers: Watch what happens to payment when rates rise and home prices dips.

Bought today 1/6/16 $280,000 Purchase @ 4% 30year Payment= $1419.00

Bought 8/6/16 $260,000 Purchase @ 5% 30year Payment= $1396.00

Bought 4/7/17 $230,000 Purchase @ 6% 30year Payment= $1379.00

Bought 9/7/17 $199,000 Purchase @ 7% 30year Payment= $1324.00

The difference is $56,000 Down vs. $39,800 Down. Interest Rates will not effect your affordability.

What happens when interest rates rise and home prices also rise? (which is what typically happens).

108   B.A.C.A.H.   2016 Jan 8, 9:07am  

Tough, your arithmetic is spot-on. Congratulations!
And so what?
You gonna wait for long term rates to rise in that fashion?
If you're very young, it could happen in your lifetime.
If you're very young.

109   mell   2016 Jan 8, 11:15am  

Tough says

Take Houston TX. Go to Zillow and see the "price cuts" on homes,

The same is happening in the SF bay area, but mostly for "luxury" homes (regular shacks here) now as the remaining qualifying buyers are trying to scramble into the few "low-end" homes (which means 500K-1MM crapshacks here).

110   Tough   2016 Jan 8, 12:16pm  

Why has there not been a buying activity for the Market? For the past year, anytime there has been a correction in the market, there is a buying opportunity followed. Since Monday, there have been 3 severe declines totaling more than -1000 points for the Dow. Even when job reports come out, and it's "good" the down goes further in the red today. There is only one time that I know of when this happened and that was the first quarter 2008? Can housing be tied to any of this?

111   Tough   2016 Jan 8, 2:23pm  

TOL is down 12% as of Monday
LEN is down 11%
XHB is down 8%

TOL exec sells 41000 shares, Lumber prices decline, seems to foretell, about 12 months in advance, changes in the rate of new home sales. It is another sign of economic troubles about to befall not only the lumber market but also the rest of the economy. Sam Zell, chairman of apartment mega-landlord Equity Residential, said, “There is a high probability that we are looking at a recession in the next 12 months.” But he said this only after he’d unloaded a ton of commercial real estate: in total 23,262 apartments in five states. The deal was announced at the end of October 2015. Another 4,728 apartments are to be dumped next year. Housing and Rates are inverse.

It's all there

112   Perplexed   2016 Jan 9, 10:09pm  

Interest rates go up, cost of borrowing goes up, ergo, you have less purchasing power. This creates a ripple effect and your upper range, for example, that was 300k is now 275k and less the higher the interest rates go. With less demand for that 300k home, the prices will have to adjust down in order to sell. So anyone who bought in the low interest rate environment with minimal down payment, ie over leveraged, will experience 2008 all over again. Interest rates ARE going up, do the math. The only way to weather this is to get a great deal with good portion equity down. Look at the $/per SQFT and comps. Get a neglected property at a steep discount and DIY some sweat equity.

113   Perplexed   2016 Jan 9, 10:16pm  

Different subject, but affecting RE. If 10 million or so illegal, or undocumented, what ever you prefer...are force to leave the country.....what effect will that have on the RE market? They live somewhere and displaced/forced others up the RE ladder. If they are forced to leave, as Ike did back in the 50's....would that not cause a RE collapse in areas where they are predominate? I have wondered if the unabashed influx is not really about helping those less fortunate, but really about propping up RE as well as addressing the declining birth rates of native borns, aka legal working citizens. (Look to Russia, Japan, etc any of the advanced economy's, birth rates are below sustainable rates.)

114   tatupu70   2016 Jan 10, 7:10am  

Perplexed says

Interest rates go up, cost of borrowing goes up, ergo, you have less purchasing power. This creates a ripple effect and your upper range, for example, that was 300k is now 275k and less the higher the interest rates go. With less demand for that 300k home, the prices will have to adjust down in order to sell.

It's a nice narrative that makes intuitive sense, but history shows the real world doesn't work that way. In reality, what happens is that interest rates rise when inflation is rising and wage growth is good. And the effect of wage growth is more powerful than the effect of rising rates---nominal housing prices go up.

115   Perplexed   2016 Jan 10, 9:29am  

tatupu70 says

It's a nice narrative that makes intuitive sense, but history shows the real world doesn't work that way. In reality, what happens is that interest rates rise when inflation is rising and wage growth is good. And the effect of wage growth is more powerful than the effect of rising rates---nominal housing prices go up.

Normally, interest rates go up to cool a heated economy, which includes factors of inflation and wage growth, but wage growth is weak, real unemployment remains high and rate of inflation is practically nil. http://www.usinflationcalculator.com/inflation/current-inflation-rates/

The fed rate is climbing because "Officials said the economy was strong enough to keep growing >with a little less help from the central bank

116   tatupu70   2016 Jan 10, 10:38am  

Perplexed says

Normally, interest rates go up to cool a heated economy, which includes factors of inflation and wage growth, but wage growth is weak, real unemployment remains high and rate of inflation is practically nil. http://www.usinflationcalculator.com/inflation/current-inflation-rates/

The fed rate is climbing because "Officials said the economy was strong enough to keep growing >with a little less help from the central bank

That's correct. And I don't think the 0.25 point change in Fed funds rate off of basically zero constitutes "rising rates". Mortgage rates are still extremely low. There is wage growth, but if it weakens you can be sure that rates will stop rising.

117   _   2016 Jan 10, 11:35am  

Rates can stay low for a very long time when inflation is low

118   Perplexed   2016 Jan 10, 1:05pm  

tatupu70 says

That's correct. And I don't think the 0.25 point change in Fed funds rate off of basically zero constitutes "rising rates". Mortgage rates are still extremely low. There is wage growth, but if it weakens you can be sure that rates will stop rising.

Which gets me back to why I found this thread, trying to determine if buying a home in north-northeast atlanta in the 400k range is a good idea in Q1 of 2016? I am looking at low $/per SQFT, etc to maximize my value, but uncertain.

119   tatupu70   2016 Jan 10, 1:09pm  

Perplexed says

Which gets me back to why I found this thread, trying to determine if buying a home in north-northeast atlanta in the 400k range is a good idea in Q1 of 2016? I am looking at low $/per SQFT, etc to maximize my value, but uncertain.

That's a decision you have to make on your own. How long are you planning on staying there? What is the rent on comparable houses in your preferred area?

120   Tough   2016 Jan 10, 1:11pm  

Can someone help shed some rational on this. Housing has been increasing because:

-Oversees Investors CHINA
-Millennials moving out of their parents house
-Low interest rates
-Strong economy and low unemployment
-Housing starts low.

BUT:

-China is pulling back from US Housing according to the (WSJ)
http://www.wsj.com/articles/chinese-pull-back-from-u-s-property-investments-1448649226

-Millennials have too much student debt, and no down payment, let alone a full time job (FORTUNE)
http://fortune.com/2014/07/08/millennials-home-ownership-renting/

-Mortgage applications plunge after rate hike (CNBC)
http://www.cnbc.com/2016/01/06/mortgage-applications-fall-27-after-earlier-rate-hike-rush.html

-China slowing economy is pulling down the US economy (BOSTON GLOBE)
https://www.bostonglobe.com/news/politics/2016/01/07/will-stock-crash-china-take-down-economy/mmMmUEED8a6BH5EsCzi3wJ/story.html

-Housing Demand and Housing Starts are surging today, Housing Demand and Starts surged from 2003-2006 then crashed (BROOKINGS / NY TIMES)
http://www.brookings.edu/~/media/Projects/BPEA/Fall-2003/2003b_bpea_caseshiller.PDF
http://www.nytimes.com/2015/07/26/upshot/the-housing-market-still-isnt-rational.html

The only difference is Subprime Mortgages and Mortgage backed Securities. Homes are being bought with PMI and 3% down, and speculation will allow them to refinance out of the PMI, only if values continue. But even today, HELOC's are starting to reset for people who bought and held during the Bubble 1 and this is added debt to an already stretched family who held onto their home, 56% are potentially resetting with higher, fully amortizing monthly payment.

http://www.housingwire.com/articles/33535-trouble-ahead-tidal-wave-of-heloc-resets-about-to-hit

121   Patrick   2016 Jan 10, 1:12pm  

anyone have a graph of mortgage rates before and after the fed's interest rate hike on dec 20th?

i want to see if any correlation is visible, but cannot find december mortgage rate graphs anywhere.

123   Strategist   2016 Jan 10, 1:17pm  


anyone have a graph of mortgage rates before and after the fed's interest rate hike on dec 20th?

i want to see if any correlation is visible, but cannot find december mortgage rate graphs anywhere.

Just go by the 10 year T Bonds. Mortgages are highly correlated with that.
There is little or no correlation as the Bonds had already factored in the Fed move.
http://finance.yahoo.com/echarts?s=%5ETNX+Interactive#{"range":"1mo","allowChartStacking":true}

124   _   2016 Jan 10, 1:38pm  


anyone have a graph of mortgage rates before and after the fed's interest rate hike on dec 20th?

i want to see if any correlation is visible, but cannot find december mortgage rate graphs anywhere.

Yields fell ... then they rose and now they're back down again

In mortgage land 1/8th down, back up again 1/8th and now back down again 1/8th

125   Perplexed   2016 Jan 10, 2:02pm  

Here is a good place to download all that data: https://research.stlouisfed.org/fred2/series/MORTG/downloaddata

126   Perplexed   2016 Jan 10, 2:08pm  

Anyone know where I can download recent sales info for a given area? I can get that from Zillow, Realtor, etc one by one and type into a spreadsheet, but would much easier if I could download the stats. Sales data is publicly available, BUT....made very painful to aggregate meaningful information. I want to see overall $/Per SQFT, lot size, age.

128   mell   2016 Jan 10, 4:57pm  

Logan Mohtashami says


anyone have a graph of mortgage rates before and after the fed's interest rate hike on dec 20th?

i want to see if any correlation is visible, but cannot find december mortgage rate graphs anywhere.

Yields fell ... then they rose and now they're back down again

In mortgage land 1/8th down, back up again 1/8th and now back down again 1/8th

0.25% is a token raise doing close to nothing to long term yields. "Normal" fed rates around 5% would tell a different story, but maybe we might see a trend when approaching 1% or more.

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