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Posted by on Jul 6, 2013 in Interest Rates/Loan Limits | 16 comments | Print Print

Say Hello to 5%

Another bond-market meltdown yesterday has mortgage rates knocking on the door of 5%.

The mortgage market is similar to gasoline – prices shoot up instantly but are very slow to come down, if they come down at all.  At this point, it would take disastrous economic news to get us back to 4% or under:

Some of the ramifications:

  • Buyers will be more critical, meaning that borderline (non-superior) properties that sold during – and because of – the frenzy, will be left behind unless priced aggressively.  Some who are thinking about listing their home for sale will give up before trying – keeping inventory tight. Sold prices will be choppy because some buyers will overpay.
  • My guess is that the number of NSDCC sales will hold up.  Now that the selling season is clearly over, look for more price reductions and a scramble to the exits by sellers who have been bluffing on their list price, hoping to get lucky the last 1-3 months.  There will be plenty of OPTs that won’t lower, and be left high and dry.
  • Jumbo rates will probably rise, but if they keep close to conforming rates, we’ll have the answer to the question – how do we terminate Fannie/Freddie?

Next week we’ll get to see how ineffective the Fed is at talking down the market, which could unravel things further.  I loved Rick Santelli’s remark on how the market is doing all of the heavy lifting for the Fed, and “the taper” is here:

16 Comments

  1. I agree with the analysis. I think with 1% higher interest rates people will need to shell out additional $600 per month. This money has to come from somewhere

    So I would think that prices need to go 10% lower. The question is will we find decent homes in CV for $1M-$1.1M. Fundamentals says we should, will be interesting over the next several months

  2. OK, So what happens when we have 6% say in a year, how about 7% ?

  3. When the economy is rip-roaring on fire?

    Hmmm, hard to remember that experience, and not sure it could come that quick?

  4. The “taper” talk is just that. Real reason could be China. The slowdown there may have them selling Treasuries out of their massive foreign reserves, which in turn would increase rates here no matter what the Fed does.

  5. I don’t think it serves China or US. I am penciling in 0.5% over next two years. Then again I didn’t think we would be at 5% this summer.
    What I do know is when Montecito in CV goes for 1.2M it’s overpriced by 10%

  6. I meant 0.5% each year over next two years

  7. None of the bad stuff Rick said would happen the last 4 has actually happened, it’s just his schtick.

  8. BJ, don’t be “shocked and surprised” when someday it does.

  9. And now the moment of truth arrives. Can Zimbabwe Ben seemlessly hand off a centrally planned economy to a new, self-sustaining free market economy?

    Call me a cynic but I doubt it.

  10. Agreed, there’s no way – he will panic first.

  11. Does the fact that we have $17 trillion debt have anything to do with all this?

  12. This would make sense if the prices had not gone up so much in the last 6 months. Am I the only one who thinks people are spending a big portion of monthly wages on housing and it just got bigger. Also the investors should be dropping like flies now. So am I the only one who thinks it’s due for a say 10% correction to align monthly payments with wages?

  13. Of those commenting, yes.

    I say plateau, but mostly because I like more vowels than consonants in a word.

  14. I’m going with a mean-reverting head and shoulders Bart Simpson rondalay swirl cause I like cool postmodern outcomes.

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