I have been converting to a new computer, and it caused an accidental cancellation of the previous post and comments.  Here is a repeat of the post, the comments were great from what I remember!

A few people who stopped by the booth over the weekend were happy to chime in that they are waiting for rates to go up, because then home prices will tumble another 10% to 20%.

But as we’ve been discussing,  potential sellers are already holding out for higher prices, by need or by choice. 

Rising mortgage rates would cause more standoff in the short-term, and the only hope for buyers would be for those underwater homeowners to concede, and finally surrender.  But the banks could kick the can further by utilizing a combination of free rent and short sales, so any spikes in new distressed inventory would be measured.

Some would suggest that logically the overall economy would have to improve substantially before rates would rise.  But I think a bump of 1% or so could happen without notice, and the Fed powers be somewhat limited to correct it.

Mortgage rates went up 1.5% between October, 1998 and May, 2000, so a big jolt to rates isn’t out of the question:

But what today’s potential sellers would do about higher rates appears to be predictable:  Nothing.

If folks haven’t bailed out from being underwater, then they probably won’t care about what rate the buyer is getting.  If they’ve hung on this long, a bump in mortgage rates would likely strength their determination to wait it out.
A longer-term inventory question will be how to resolve the houses once baby boomers are done with them – when they either pass away, or move on to the rest home.

Do the heirs sell them, or move in and spend another generation?  These houses will be in the best locations, but typically in need of substantial repairs and updating.  It’s doubtful that there will be a tsunami, but this category could become the #1 source of sellers over the next 5-20 years.

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