patrick.net

We support you "hole" heartedly, HARM

Thanks HARM for coming to the rescue. In 2+ years, we haven't seen such a steep rise in the yield curve. A 750K house with 20% down, leaving a 600K mortgage just went from 3600 mthly pymt to 3900 in one month's time. $300 monthly increase is 108K increase in the course of a 30-year loan. Many on this blog are actually looking at houses in twice this range meaning their mthy pymts would've just gone up $600/mth were they to buy. I damn well hope this rate increase translates into a significant price drop. Hell, the boom in prices was the result of cheap rates, now we're at 5-year highs in rates, it's time for prices to drop.

Np, Busted ;-).

While this post was obviously tongue-in-cheek, it's often been pointed out that the greater the MSM's acceptance (and to a lesser degree, public's) of the bubble existence, the tougher it will be for us to produce fresh material and continue to be "contrarian", by definition. Every day, we see a flood of news stories confirming our POV, and there's not much else original to be said on the subject really.

That said, I think we *still* have a way's to go on the general public's acceptance, and for every HB "convert" there are still plenty of industry shills busy "bottom-calling" each week to be debunked. Perhaps Patrick will eventually have to reinvent this site with a broader scope as a contrarian thinkers' or investors' blog.

RE: Coalition to Defeat Irrelevance

Huh?

This blog is actually very likely to become irrelevant in some way or another. There doesn't seem to be much that could keep the bubble from deflating now, and the MSM is starting to cotton on to the truth. (Or be unable to hide it to keep their NAR advertisement money rolling in.)

This blog is actually very likely to become irrelevant in some way or another.

We can make a a very relevant food blog. :)

Busted :

Let's extend that line of thinking. I will use round number for simplicity sake. Using calculators on the ZipRealty site, here is some fun at numbers.

For 1M house, 20% down payment, 30yr FRM the PI in PITI comes out to be

at 6% = 4800 per month.
at 7% = 5300 per month.

So that's 500 per month increase. So let's try to find out at the same 4800 per month PI, how much house one can afford. This turns out to be

A 900K house with again 20% fixed and 30yr FRM

at 7% = 4800 per month.

So, if rates increase by 1%, instead of 1M house, the same payment can afford only a 900K house.

These are rough calculations. I did the same thing starting with a 800K house. With 7% the same payment can afford only 730K house.

Conclusion. A one percent jump in interest rates causes BIG affordability problems when people are maxing out on their mortgage payments.

This will not translate 1 to 1 in price drops. There will be some price drop and some of it will be compensated by buyers buying smaller house etc.

Real estate price is more dependent on job prospect than on interest rates.

Taking on a loan of 30-year duration requires a lot of confidence, not on the interest rate, which is locked down anyway, but the prospect of earnings. The BA job market today cannot be better, and it gives out a kind of false impression that since the job market is SO GOOD when the housing market is depressed in the rest of the country, how much BETTER will it be when the rest of the country comes out of the bottom? There are no shortage of stories of fresh grad school students getting $150K+ offers from web2.0 startups or financial outfits looking for the elusive alpha. If you just got handed $150K fresh out of school, what would you think of your job prospect for the next 30 years?

I repeat several times here already, until you start to see joker web2.0 startups folding en masse, the BA housing market is not going to land, at least not in the fortress.

Interest rate movement also doesn't affect people who have already locked down their rates, in fact, those who did are busy congratulating each other for getting into the "ownership club" before the door is slammed. Job does. Owner-occupiers or even investors will only sell if they have no more financial means to pay their mortgage. Job market has to crack first.