She mentions that payments at $72 higher on a $200,000 loan, which, in higher-priced areas, translates to $288 higher on a $800,000 mortgage.
Category Archive: ‘Interest Rates/Loan Limits’
We’ve been enjoying a statistical exuberance that is somewhat misguided.
The latest Case-Shiller Index was the March reading, which includes sales data from the previous two months too. Our recent local data has been looking strong as well, with both April and May sales and prices higher year-over-year.
But rates were lower when those buying decisions were made. Rates are heading north now, and are higher than they have been all year:
The reports of good news will keep coming all month, and sellers will stay optimistic – and be reluctant to lower their price in the midst of the euphoria. But the prime spring selling season is complete, and the summer sales should be impacted if rates keep rising.
Back in 2013 when rates started rising, some buyers rushed to purchase – but that was 10% to 20% ago, price-wise. They are going to be more tempted to wait it out this time.
Get Good Help!
Shiller takes a shot at Californians in the video below:
The U.S. Federal Reserve should consider lifting interest rates sooner rather than later to tackle speculative bubbles in the housing and stock markets, Nobel Prize-winning economist Robert Shiller told CNBC on Monday.
Shiller said that some parts of the U.S. — such as San Francisco and California — were in “bubble territory,” with house prices growing rapidly.
“If I was asked to testify before them (the Fed) I might reconsider, but there is a tendency for central banks to ignore speculative bubbles until it’s too late,” Shiller said, talking about the need for higher interest rates.
“It may already be too late. Stock markets in the U.S. are quite high and prices in the real estate market are getting high.”
“I call this the ‘new normal’ boom – it’s a funny boom in asset prices because it’s driven not by the usual exuberance but by an anxiety,” said Shiller.
“This is an anxiety driven world – the whole world is driven by anxiety. It is anxiety about the aftermath of the global financial crisis, it’s anxiety about inequality and about computers replacing jobs,” he added.
Last week we saw the recent NSDCC sales history – how does it compare to previous years?
Here are the sales stats from the first four months of each year, going back to the beginning of the 2-out-of-5-year capital-gains tax exclusion – which helped trigger the ensuing bubble:
In spite of all the excuses – low supply, high prices, tough credit, etc. – this year’s sales count is the second highest of the last ten years.
Want to know the direction of the market? Watch the sales count – it reflects the changing combination of low supply, prices, tough credit, and mortgage rates. We have it good here!
Click for more local history: http://www.utsandiego.com/news/2005/dec/25/housing-boomed-in-north-county/
We have significant turbulence in the bond market this week, and most think it can’t get any worse. The jobs report tomorrow will probably dictate the next movement, but for now the 30-year mortgage rates are around 4%.
If rates go above 4%, is it nervous time?
Not really – rates were in the fours virtually all of last year. We’ve been spoiled the last few months!
Finding a worthy house to buy is the problem.
Mortgage rates are known to rise without much notice – if any! From MND:
Mortgage rates are having a rough couple of weeks. Yesterday saw rates approach the previous 2015 highs set on March 6th. Today’s rates moved slightly higher still, setting a new 2015 high.
The average lender is now quoting conventional 30yr fixed rates of 4.0% on top tier scenarios, though 3.875% is still available in some cases. This is a substantial increase from the 3.625% rates seen just a few short weeks ago.
The last time rates spiked (June 2013), it spurred the market as buyers grabbed what they could while rates were still under 4%. But now that prices are more than 10% higher, the impact might go the other way.
The NSDCC sales count for April exceeded last year’s number, and prices were slightly higher too. But the rate of price change has slowed considerably, and if rates bump significantly higher, we should see the market stall out.
NSDCC Sales for April
In the short-term, there is virtually no chance of prices coming down, because sellers won’t believe it. Their motivation is already suspect, and when confronted with the choice of lowering their price or waiting longer, virtually all NSDCC sellers will opt for the latter. It will only be after months and months of trying that they might consider that price is the problem.
This guy doesn’t think the Fed will raise rates in September, and he has been very accurate with his recent predictions. If rates stay around 4% or lower, we should see more soft landing/shambling along, with occasional bidding wars to keep everyone’s interest.
Yesterday some Wells Fargo guys urged the Fed to raise rates:
Today Wells reported they made $49 billion in home loans in 1Q15, which is 36% higher than last year:
They may be goosing the Fed to raise rates so the WFB profit margin increases a tad, but they seem to be doing fine. But the mortgage-rate environment sure looks competitive, with jumbo rates staying UNDER the conforming rates:
Once the Fed gets around to raising their rate, the ensuing hysteria through the bond market may increase mortgage rates by 1/4% to 1/2%. But the competition between WFB, Chase, and BofA that has caused the jumbo rates to be this ultra-low should bring rates back within a couple of months.
The Fed move is still at least three months away – and probably longer.
Don’t worry, be happy!
A big difference between today and the bubble years is the type of financing being used. Back when the Tan Man was pushing exploding ARMs, more than 70% of the buyers took him up on it – today, more than 80% are choosing a fixed rate mortgage:
Plus, those who get stuck not being able to pay when their ARM increases can always loan mod out of it!
Maybe prices are softer than we thought? By John Burns:
In the last 15 years, home prices have grown 29% faster than incomes, primarily due to falling mortgage rates. Since the monthly payment determines what most buyers can afford to pay for a house, we thought we would show you the powerful stimulus that lower interest rates have on home price appreciation.
A typical family earning $60,000 per year can afford a mortgage payment of $1,800 per month, which qualified them for a $245,000 mortgage in the year 2000 when mortgage rates were 8%—– and qualifies them for $377,000 when rates are 4.0%. In other words, each 1.0% drop in interest rates in the last 15 years has allowed home sellers to raise price 12%+/-.
Since last March, rates have fallen 0.7%, a 9% stimulus to home prices. For all but the most affluent home buyers, payment trumps price, and sellers now have the ability to raise prices again.
Price drives profit, which is why the industry always talks about price. However, payment drives price. In addition to talking about price, please always calculate the payment. It will help you stay in touch with the consumer.
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