Home buyers are hoping that higher rates will cause prices to come down, and while it could certainly happen – here are reasons why they won’t:
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Prices have increased so much, so fast, that sellers are emboldened. If it would have taken the 5-10 years to bottom out like many predicted, there would be more seller fatigue. But today’s disappointed sellers will be more likely to think that the next rise in prices in right around the corner – and they will wait, rather than dump.
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Rents are rising; which puts pressure on buyers to buy and sellers to stay.
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Loan mods are working. They might be temporary, and there are probably a number of defaulters getting a free ride, but with higher prices, those psuedo-homeowners will do whatever it takes to hold out longer to see if they can cash in…again.
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The media keeps saying that it is still cheap, historically.
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Lenders keep getting more creative. The mortgage industry is known for its hybrids – you hear them pushing more of the 5, 7, & 10-year adjustable loans now, and the piggybacks (where the buyer gets a 1st and 2nd mortgage to lower the down payment required) are back!
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REOs and short sales are over, and nobody is going to ‘give it away’ now.
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How homes are sold is changing. You saw on video where Spencer said that his Zillow is already the national MLS, and other players have to be licking their chops when they see the buffoons at NAR stumbling all over themselves. Google could be a game-changer too – click HERE to see their patent for ‘software applications for real estate multiple listing services’. The excitement will help to propel sales.
- Inventories may be up, but you don’t see many quality buys.
All factions are lined up in support of housing, and today’s buyers are comfortable with looking long-term.
The higher prices/rates are reasoned away by the pull of the ultimate goal – owning a home in which to raise the family. The most-motivated buyers are the ones buying, and with prices only going up at 1% at a time, a few more bucks won’t slow them down.
Plus the cost of carry is cheap.
Many homeowners refinanced under 4%. If they have to move, they can rent the house out rather than sell it, and in many cases get positive cash flow.
Looks like another 3 years or more of a slow upward grind.
So does this mean what happens to interest rates in second half of the year is a non factor?
If rates shoot up again, sellers will wait. So far, their waiting got them a cheap-and-easy taste of the potential jackpot – they won’t panic now.
If banks start foreclosing again, it might scare a few sellers who are tight on equity to scoot a little closer to the exit, but they aren’t going to give it away – not now, not when waiting 18 months got them a +20% windfall.
A spike in rates means market-stall until springtime, and even if sellers had to chip away at that +20%, both you and I know that it will still be a win for them.
But they will hold out for more – at this point, their ego would rather not sell, than take the +19% and be done.
Could there be a collapse from above? After all, there are 814 detached homes for sale over $1,000,000 in NSDCC.
But 123 sales have closed over $1M in the last 30 days, which is a 6.6-month supply, and what most people think is about normal.
$1,000,000 ain’t what it used to be, and the foreign exchange has to be the main driver.
“Rising prices have helped some people regain equity, giving them an escape hatch to avoid foreclosure, and also giving them hope to keep making payments, rather than just walking away via a strategic default,” Blomquist said.
http://www.housingwire.com/articles/26172-mortgage-modifications-up-foreclosure-starts-down
Excellent list Jim. I agree with everything. The big miss by about 95% of gurus and media was how fast things recovered after the crash. It goes to show once again it really pays to not follow the crowd. 2009-2011 was the time to steal properties in SD County. The years when everyone hated real estate. 99% of the so called guru’s were saying that whole time that RE prices would keep falling for years and be a terrible investment. They got that one wrong big time.
I finally got around to charting 2000 to 2013 national “affordability” in terms of median household incomes, financing costs and median home prices. IMHO it reinforces my belief that prices are extremely rate-sensitive.
Furthermore, it shows that the post-2009 boom in prices still had some room to grow… until rates jumped.
I believe houses will go up because deadbeats aren’t being forced to leave. If nobody is foreclosing why not ask for a crazy amount. If you asked for a reasonable amount you might actually have to move after the sale.
Agreed, we are in a “Make Me Move” market.
And if prices were to peak and fall from here that same 95% who are predicting prices will trend higher from here regardless of rates will be wrong again. Humans are terrible at long term rational thinking. In today’s information era we take the past 6 months to a year of a trend and apply it indefinitely in the future even if that kind of move has never happened in the previous 100 years of history.
I tend to agree that there isn’t an obvious catalyst for prices to fall from here and maybe they just level off, but find me somebody who thinks the worst case is something worse than flat right now.
I’d say the Sellers are not in trouble, there are no deadbeats to speak of, and the market and the larger economy are stable. If you made it this far you don’t need to sell, and, like another person wrote, you probably refinanced into a great loan.
A gradual and strategic rise in interest rates will help cool any overheating but still allow for a solid 7-10% appreciation.
Here is what homeowners are thinking right now; my mortgage is cheap, and, the house is appreciating nicely. Maybe I’ll list and test the waters but if I don’t get my price at peak levels, then I’ll just sit back.
Printing $1T annually just to get 1.7% growth is stability?
How would you describe your car if pressing the pedal almost to the floor got you a maximum 30mph?
@TJ & the Bear
“How would you describe your car if pressing the pedal almost to the floor got you a maximum 30mph?”
I drive a prius so I know the feeling…..
Mozart Said:
“there are no deadbeats to speak of, and the market and the larger economy are stable.”
So you think a fairly recent video of Jim’s, showing a property from which the mortgage holders were forced to vacate, and presumably hadn’t been making payments in a while, as well as Bernanke’s recent statement that our economy isn’t very stable, is… irrelevant.
I know I’m looking like an idiot by asking you for further explanation, maybe even a citation by a qualified authority, but I guess that’s why you’re Mozart, and I’m just Daytrip.
LOL for just some guy!!!
Daytrip- I suppose you could look at previous blog posts or Dataquick;
http://www.dqnews.com/Articles/2013/News/California/CA-Foreclosures/RRFor130723.aspx
Or perhaps this story;
http://www.utsandiego.com/news/2013/Jul/23/san-diego-county-foreclosures-mortgage-defaults/
I just bought a house (well, it’s in escrow still), so with my luck being what it is I can pretty much guarantee a housing market collapse.
Not sure if the Fed can keep interest rates from hitting 5.5% even with the $1 trillion/year being pumped into the economy for stimulus. I think because of all the real-inflation (including food and energy), and our Purchasing Power being reduced for United States Dollars that we’ll see more and more foreign buyers.
With all the new rules coming down the pipeline from Washington I suspect that many full-time workers will be going to part-time with no benefits. So while the unemployement rate is going down it will be because people are Part-time workers (of the 953,000 jobs created in 2013, 77%, or 731,000 were part-time) – not the kind of jobs that we need for homebuyers.
Source: Bureau of Labor Statistics – http://bls.gov/news.release/empsit.t09.htm
Accedotially, I have a neighbor who is Russian (heavy accent), and another who is Chinese (speaks little to no English).
Probably not many reasons for the market to go down.
But, I would not look at this one as a positive:
If the exotic mortgages are starting to make a comes back, it also means affordability problems are starting to creep in the pool of buyers. This is not a good sign.
Mozart,
Thanks for the links from dataquick!