11 ms·

Mortgage rates have been rising at a pace not seen in almost 50 years

117 points by spking 8y ago

handpickednames 8y ago
https://outline.com/XxNrUc https://outline.com/XxNrUc
tomxor 8y ago
> Sorry, this content is not available in your region. lame.
- deleted 8y ago
  [deleted]
- self_awareness 8y ago
  Is this GDPR in action?
  - joering2 8y ago
    I confirm! Has nothing to do with Russia. Any VPN i tried located in EU cuts me off. Meanwhile non EU IPs do work!
    - mirimir 8y ago
      Yeah, I've switched to a US exit.
  - raverbashing 8y ago
    More like GDPR fear mongering and lack of reading comprehension. If I got an euro for every person that repeats BS like "your site will be fined 20Mi Euros for a violation" I would probably have the aforementioned 20Mi Euros
- siberianbear 8y ago
  Yeah, I got the same message. Russia gets no love on the Internet. So many web sites just block all Russian IP addresses.
  - dhekir 8y ago
    It's also happening in France, maybe in all of Europe due to GDPR.
- marak830 8y ago
  For those in Europe(without a vpn) Mortgage rates continued their upward march this week, extending the most prolonged increase in rates in 46 years. According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average climbed to 4.66 percent with an average 0.4 point. (Points are fees paid to a lender equal to 1 percent of the loan amount.) It was 4.61 percent a week ago and 3.95 percent a year ago. The 15-year fixed-rate average jumped to 4.15 percent with an average 0.4 point. It was 4.08 percent a week ago and 3.19 percent a year ago. The five-year adjustable rate average rose to 3.87 percent with an average 0.3 point. It was 3.82 percent a week ago and 3.07 percent a year ago. "Mortgage rates so far in 2018 have had the most sustained increase to start the year in over 40 years," Sam Khater, Freddie Mac's chief economist, said in a statement. "Through May, rates have risen in 15 out of the first 21 weeks (71 percent), which is the highest share since Freddie Mac began tracking this data for a full year in 1972." The Federal Reserve released the minutes from its May 2 meetings earlier this week. Officials indicated they are unlikely to hasten increases to their benchmark rate. The next interest rate hike is expected in June. "The minutes suggest that the [Federal Open Market Committee] remains committed to a gradual withdrawal from the remnants of its crisis-era policies, rather than a more aggressive withdrawal as had been suggested in several recent speeches," said Aaron Terrazas, senior economist at Zillow. "Absent any geopolitical surprises, financial markets should be quiet going into the long holiday weekend, but expect more movement next week leading up to next Friday's jobs report." Bankrate.com, which puts out a weekly mortgage rate trend index, found that nearly half of the experts it surveyed say rates will rise in the coming week. Shashank Shekhar, CEO at Arcus Lending, disagrees. He expects rates to remain unchanged following the holiday weekend. "After touching a seven-year high, mortgage rates expectedly went down a tad last week," Shekhar said. "However, there is no reason for that downward trend to continue to anything significant. The Fed is still expected to raise the rate again in June with odds currently split between the probabilities for three or four increases for the year as a whole. With no major policy change expected from Fed and a short week because of Memorial Day, should mean a mostly stable market with mortgage rates not changing much for the week." Meanwhile, mortgage applications declined again last week, according to the latest data from the Mortgage Bankers Association. The market composite index - a measure of total loan application volume - decreased 2.6 percent from a week earlier. The refinance index fell 4 percent, while the purchase index dropped 2 percent. The refinance share of mortgage activity accounted for 35.7 percent of all applications. "As a result of rising rates, refinance applications continued to decrease, with our refinance index hitting its lowest level since December 2000," said David Stevens, MBA president and CEO. "Purchase applications decreased over the week, but the average loan amount for purchase loans increased to over $320,000 after averaging around $317,000 for the past four weeks, likely a sign that inventory for lower priced homes remains low and the mix is still skewed toward larger loan balances,." said David Stevens, MBA president and CEO.
koverda 8y ago
Can someone with a background in econ / real estate weigh in on this a bit? Curious to hear some opinions on the housing market within the context of rising rates.
- ChuckMcM 8y ago
  Disclaimer: I'm just an enthusiast. Generally, in most discussions of the cost of housing, people discuss this expense in terms of a fraction of your income. In the US, a number of advisory articles and books consider between 25 and 30% of your gross take home pay as a "reasonable" amount of your income to pay for housing. So if you make $120,000 a year, that is about $3,000/month as 1/3 of your gross take home salary. According to the FED income growth has been fairly static over the last decade so that 1/3 number has been fairly static as well. [1] Given those two observations, you can derive the impact of rising interest rates on home sales, which is to say that as the rates rise, the monthly payment will rise, and that will put homes out of the 25 - 30% window for people. Historically that means a slower sales cycle and downward pressure on house prices (which keeps the payments at the lower level). If there is a commensurate rise in real wage growth it won't slow down the housing market and the banks will make more money. If wages stay stagnant the housing market will cool off and if it does so for long enough prices will come down as people who have to move will feel pressure to lower the price in order to have the sale go through. [0] https://www.google.com/search?q=what+percentage+of+my+salary+should+I+spend+on+housing https://www.google.com/search?q=what+percentage+of+my+salary... [1] https://fred.stlouisfed.org/series/LES1252881600Q https://fred.stlouisfed.org/series/LES1252881600Q
- otterley 8y ago
  For one, the Federal Reserve has been raising the overnight rate it charges banks. Commercial lenders typically try to maintain a certain interest rate "spread" between the Fed's overnight rate and the rates they charge mortgagors, so if the Fed's rate goes up, all lending rates tend to go up in tandem. (This is called "indexing.") In the past year, the Fed's base rate has gone up 75 basis points (0.75%) and it looks like mortgage rates have basically gone up in lock step (actually a bit less -- last year a 30-year fixed was about 4.05%, today it's about 4.61%). Usually, the Fed raises rates when it has significant inflation concerns -- so it's most likely the overall inflation risk that's driving increased rates across the whole market, and not something that points to an overheated real estate market in particular.
conwaytwitty 8y ago
What drives the interest rates in the us? In europe my loan is tied to the euribor 3month rate, which has been negative for ages and hasn't shown any signs of rising. I remember having an argument on some webforum with some non european guy that could not believe my current interest rate is close to zero (mostly just fees collected by the bank).
- otterley 8y ago
  The Federal Reserve Bank ("The Fed") sets the base rate (i.e. the "overnight rate") from which commercial banks can borrow. Those banks, in turn, lend to debtors of all sorts, adding various risk premiums to the interest rates along the way. More info: https://www.federalreserve.gov/aboutthefed/structure-federal-reserve-system.htm https://www.federalreserve.gov/aboutthefed/structure-federal...
  - conwaytwitty 8y ago
    Sounds similar with a base reference rate + lender's margin (in finland currently like 0.2-0.5% for house loans), but for some reason the base rates are positive in the us? After 2008 in europe the rates took a dive and have been negative for a few years.
    - einarvollset 8y ago
      Doesn’t work like that in the US. Most mortgages are fixed rate for the duration of the mortgage.
- vostok 8y ago
  > What drives the interest rates in the us? This is a very complicated question. There have been periods where short rates go up but 30y mortgage rates are unched or only up small or even down. I think most people use 30y fixed rate mortgages in the US.
- ckinnan 8y ago
  U.S. variable rate mortgages are usually indexed to Libor or U.S. treasury rates.
Bucephalus355 8y ago
FYI, housing prices can rise as well as fall for periods of 40-50 years and this has been shown in the historical record. The Journal of Real Estate Economics has a fascinating article from 2011 which goes into this in detail, by looking at the price of land / various housing structures in Manhattan and Chicago from 1920 to 1960. By 1932, housing prices had dropped nearly 70% from their 1929 peak. If you had bought a 1-story house in Manhattan in 1929, it would not be until the mid-1960’s that you got to just break-even, let alone made any money. http://www.people.hbs.edu/tnicholas/anna_tom.pdf http://www.people.hbs.edu/tnicholas/anna_tom.pdf Also for those curious, I suggest you search “home prices” on https://images.google.com https://images.google.com. The very first image is so laughable, and such a suggestion of the times we are in. This will not end well.
- dcosson 8y ago
  It'll arguably end even worse if they keep going up though.
  - ChuckMcM 8y ago
    I'll take that argument :-). If we enter a deflationary spiral in housing it traps people with mortgages who find themselves owing more in their house than it is worth (we saw that after the Mortgage meltdown). Where as if the prices continue to rise, we see people who would prefer to own houses kept out of the market, but their mobility is not impacted. Of the two scenarios, I consider the deflationary one "worse" in terms of its impact on more people.
    - oculusthrift 8y ago
      they can always sell the house and take the loss. just like a stock bought on a loan. don’t get why it’s preferable that someone can’t afford a house rather than someone who already has a house no longer being able to afford it. that’s like saying no matter how big of a mortgage i take it’s immoral for something to happen where i can’t afford it anymore
      - 8y ago
sk5t 8y ago
TLDR: rates are still very low, but have increased a skosh with some consistency over the past several months, the meaningfulness of which statistic is here unsupported.
mirimir 8y ago
Missing from this article is that mean 30-year rates have dropped more-or-less steadily from 9.25% in 1991, to 3.65% in 2016.[0] Also, even "rising at a pace not seen in almost 50 years" seems iffy. Mean 30-year rates increased from 8.85% in 1977, to 16.64% in 1981. Rates increased at 2%-3% per year during 1977-1981, vs an 0.8% increase from May-17 to May-18. 0) https://www.valuepenguin.com/mortgages/historical-mortgage-rates https://www.valuepenguin.com/mortgages/historical-mortgage-r... Edit: Maybe they're adjusting for inflation. But they don't say so, if they are.
- aphextron 8y ago
  The late 70's/early 80's were a time of massive inflation. Take any interest rates in this time period with a grain of salt.
mephitix 8y ago
I'm not an expert at all in this - but it seems like now is a great time to be a real estate investor? Given that interest rates will rise, there will be more demand in the rental market. I don't think REITs will be a good option because of the potential for higher interest rates but investing in a property, locking in that interest rate, and generating positive cash flow from rent would be a sound decision?
- ramen-san 8y ago
  5 years ago was a great time to invest in real estate. Today is probably okay, though prices have risen dramatically across the board (even the cities that got crushed in the recession have risen past pre recession levels), and rates are rising. Returns are getting compressed. Still good deals out there, but the risk/reward profile is shifting in the wrong direction. For more on real estate investing, I write a lot on the topic here: https://ramenretirement.com/ https://ramenretirement.com/
  - mephitix 8y ago
    I guess I should rephrase - now is a good time compared to the foreseeable future? As in, next couple of years it will be a worse time. I actually bought a house 5 years ago, and I really feel I totally lucked out. Back then though, the fear of rising interest rates scared me into buying. Like you, I don't expect those type of returns with any investment I make now... but I was thinking about diversifying my finances, and moving money away from stocks into property real estate. I know that I'll have to be much more diligent about finding the right market/deal. I'm using Bigger Pockets at the moment which is quite an amazing resource. Thanks for pointing me to your site too.
    - ramen-san 8y ago
      Yes - if rates continue rising, along with prices, then returns will get compressed. Check out my analysis of that dynamic here: https://ramenretirement.com/2018/05/16/interest-rate-impact/ https://ramenretirement.com/2018/05/16/interest-rate-impact/ Doesn't mean you shouldn't invest - just figure out what sort of returns you're willing to accept (along with the corresponding risk / cushion you need), and hold that line when you run your diligence. FWIW, I think you can still find single family investments in the midwest that will generate 8%+ cash on cash returns (after fully accounting for all direct, and reserved expenses). That's still a pretty good return, but getting harder to find. It's hard to say when the market will soften or correct, so a dollar-cost-averaging approach to buying RE is probably a good idea (i.e. buy a rental property every quarter, or every half year.). Given that pretty much everything is going right in the economy right now, my investment stance is more conservative. It's not a bad time to buy, but it's definitely not a fire sale. Bigger Pockets is a great resource. Drop me a line if you ever want to chat in more detail. I've gone pretty deep in the whole space, and have a background in investing and finance.
ProfessorLayton 8y ago
Rising rates are going to cause havoc here in the Bay Area, and other metro areas with extreme cost of living expenses and NIMBYism due to the following: - Interest rates were amazingly low in 2016. Many got their 30 year mortgages locked in at 3.5%, or we’re able to refinance their existing one into that. - Rising rates may slow housing price increases, but due to NIMBYism, I don’t foresee them coming down substantially, if at all. The Bay Area recovered from the housing crash swiftly. In a normal market high interest rates should cause prices to come down since people can only afford a certain monthly payment, but an artificially constrained market is not normal. - Those locked into an amazing interest rate are inscentivized to hold on to their homes, further reducing liquidity in the housing market. Combine that with other incentives like Prop 13, ridiculously low SALT deduction and lowered interest write offs for new mortgages in new tax bill, and you have a recipe for disaster. - Further stratification between those who can afford to buy in these markets vs those who can’t. I suppose interest rates could fall again, they were also at record lows in 2013, rose, and fell again in 2016. Tl;dr rising interest rates are going to freeze an already illiquid housing market in SFBA, NIMBY metros. Edit: I would love to read why someone disagrees with this analysis instead of just a downvote
- usaar333 8y ago
  Agreed that it is quite plausible this won't cut housing prices - and may even raise them - contrary to what might be expected from basic econ. This notably happened at the start of this year, where even though tax code changes made buying a house ~10% more expensive (relative to renting), housing prices kept riding, perhaps partially because existing owners also became more incentivized to hold because the code grandfathered in a $1M tax deduction. Nonetheless, I think "havoc" will be minor. It already makes little sense to buy in the Bay Area (https://medium.com/@usaar33/why-you-shouldnt-buy-a-home-in-the-bay-area-right-now-9eff37da8d6 https://medium.com/@usaar33/why-you-shouldnt-buy-a-home-in-t...) - and that fact will just continue to be true.
- jgh 8y ago
  Aren't "locked-in" rates typically renegotiated every 5 years or so? So if rates keep increasing the entire time some folks might be in for a rude awakening in 2021...
IloveHN84 8y ago
Stupid GDPR, the site isn't available
- rvense 8y ago
  It's not the GDPR that's stupid, it's whoever runs this site. Compliance isn't hard.
  - scotty79 8y ago
    They complied. It wasn't hard.
- icebraining 8y ago
  http://web.archive.org/web/20180525050009/https://www.lmtonline.com/business/article/Mortgage-rates-have-been-rising-at-a-pace-not-12940865.php http://web.archive.org/web/20180525050009/https://www.lmtonl...
- rorykoehler 8y ago
  Just use a VPN if it bothers you so much. I had to VPN through the Netherlands to pop my GDPR blocking cherry.
xhruso00 8y ago
451 Unavailable For Legal Reasons Sorry, this content is not available in your region. Seriously???
- mrep 8y ago
  Most of the web is funded by targeted advertising. Are you seriously surprised that a lot of those websites are blocking EU users since they cannot make a profit off of them now due to GDPR?
cbayram 8y ago
Good. Home prices have been out of control. Cheap money along with mortgage lenders have done nothing but push home prices to absurd levels. Local governments are complicit in this exploitation as property taxes rise/reset, giving them a skin in the game. The only suckers are the home owners, new and existing alike. They are being exploited by usury and repayment of an unreasonable debt on a home ,which without lender money would cost significantly less. Some long term residents are being priced out due to rising taxes. Remember, the home value gains aren’t realized until you sell whereas the interest payment and property taxes are each and every year. This dynamic is turbulent and bad for health and continuity of communities. Car and student loans are similar. It’s not suprising that tuitions are out of control. Like with housing, the school administrators are complicit. Student loans are perhaps worse. One can’t default on a student loan but the rates are 6-7%+ nevertheless. Securitization of debt in dwelling, education and transportation are just three examples of exploitation of the individual. The irony that some of this liquidity is your very own retirement funds is not lost on me. A self-feeding loop. One must work their entire life, often in misery to repay these absurd prices. For me this is enslavement. Ideals aside, this is reality. Such is the system and life. It’s survival. Having this perspective helps me refrain from being trapped and make sensible decisions. What’s the justification for this premium on this debt? “Umm, we provide liquidity to the very asset bubbles we create. We assume the risk of default on the loan which in reality Uncle Sam insures is against. Oh and also, we can use that money in one of the other markets that exist for us to exploit.” Tell me again, what risk are these institutions really taking? END RANT
- nwatson 8y ago
  A recent "The Indicator from Planet Money" podcast episode "Rising Rates Vs. The Housing Market" explains how housing price declines don't necessarily follow from rising mortgage interest rates.
  - steveax 8y ago
    Yeah, there’s less of a relationship between those than one would think. Slightly related: it’s time to phase out the mortgage interest deduction and plow that revenue into affordable housing.
Danski0 8y ago
Reading comments here it seems that US house owners consider 3.5% low, is this correct? Article is locked for EU readers. This just makes me even more scared about Swedens new normal that is 1.50% (1.00% after tax deduction). Today I even get offered 0.99% (0.70% after tax deduct). What is currently "normal" rates in different regions in the world?
- erikb 8y ago
  Think about it the other way around, that you would lend someone a significant amount of money, that you could also invest in stock, into your own business etc. I think 1.5% is really low, when you think about it that way.
- deleted 8y ago
  [deleted]
- jbarham 8y ago
  3.5% in the US is probably adjustable rate. 30-year fixed rate is around 4.66% (http://www.freddiemac.com/pmms/ http://www.freddiemac.com/pmms/). Note that, AFAIK, the US is the only country in the world to offer fixed 30-year mortgage rates. Here in Australia five year fixed rates are around 4.79%. Swedish rates are crazy low. Lots of people are going to go bankrupt when they're forced to renew at higher rates.
  - IkmoIkmo 8y ago
    US is definitely not the only 30y fixed country in the world... how many countries are you familiar with? For example, the Netherlands has done 30y since forever. Current rates are between 2.5% (best case) and 3% (worst case with 0 down) for 30y fixed. 5y fixed is 1.2% to 1.6%, it's absolutely ridiculous.
- craftyguy 8y ago
  3.5% is low in the US, but it also depends on the duration and type of the loan. Rates below 2% would be exceptionally rare, but you can't compare rates if you don't also consider the other terms of the loan.. Are your <1% loans for the full price of the home, or a reduced price after accounting for you paying for some percentage in cash? (in the US, known as a down payment)
kristianp 8y ago
As someone not living in the US, having a loan rate fixed for 30 years seems insane. So if interest rates go up in the US more than Freddie Mac expects, they are going to lose money on all their loans for 30 years? Seems like an unsustainable risk to me. In Australia we have 4 year fixed home loan rate, and most loans are variable rate.
- ComputerGuru 8y ago
  No, that’s when they get another bailout ;)
- carlivar 8y ago
  Are you aware of the amortization schedule? Interest portion of the payoff is front loaded. It is a very good deal to write a mortgage no matter what the rate is, assuming default risk is low.
  - kristianp 8y ago
    Is that visible to the customer, or only in the bank's accounting?
    - carlivar 8y ago
      Extremely visible. You can create one yourself via many free web tools. Just Google it.
      - eco 8y ago
        They included a full amortization schedule in my mortgage signing documents. I imagine they always do but don't know for certain.
koliber 8y ago
It's May 25th, 2018, and 9 hours and 14 minutes ago GDPR came into effect. I tried opening this link, which I imagine links to some news or media outlet. This is what I see: 451 Unavailable For Legal Reasons Sorry, this content is not available in your region.
- jgh 8y ago
  heh yeah, same here...in france.
- TomK32 8y ago
  at least they admit to doing shady business with the users' data.
  - icelancer 8y ago
    AKA tracking a visit or something. GDPR is so blanketed that some sites are just turning off access since it's easier to do.
- Luuseens 8y ago
  Best of all, if you check the traffic, you still see it sending your info off to Google Analytics.
  - Z-Widwil 8y ago
    Try uMatrix: https://github.com/gorhill/uMatrix https://github.com/gorhill/uMatrix Super simple web connection switchboard by Gorhill (person behind uBlock Origin). It allows you to assign certain addresses and elements to block calls from/to. For example 'www.google-analytics.com'. I use it as a catch-all when loading a web page, then release elements that I want to load.
- carlmr 8y ago
  I see the same from Germany.
- yread 8y ago

117 points by spking 8y ago

handpickednames 8y ago

https://outline.com/XxNrUc https://outline.com/XxNrUc

tomxor 8y ago

> Sorry, this content is not available in your region. lame.

deleted 8y ago
[deleted]
self_awareness 8y ago
Is this GDPR in action?
- joering2 8y ago
  I confirm! Has nothing to do with Russia. Any VPN i tried located in EU cuts me off. Meanwhile non EU IPs do work!
  - mirimir 8y ago
    Yeah, I've switched to a US exit.
- raverbashing 8y ago
  More like GDPR fear mongering and lack of reading comprehension. If I got an euro for every person that repeats BS like "your site will be fined 20Mi Euros for a violation" I would probably have the aforementioned 20Mi Euros
siberianbear 8y ago
Yeah, I got the same message. Russia gets no love on the Internet. So many web sites just block all Russian IP addresses.
- dhekir 8y ago
  It's also happening in France, maybe in all of Europe due to GDPR.
marak830 8y ago
For those in Europe(without a vpn) Mortgage rates continued their upward march this week, extending the most prolonged increase in rates in 46 years. According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average climbed to 4.66 percent with an average 0.4 point. (Points are fees paid to a lender equal to 1 percent of the loan amount.) It was 4.61 percent a week ago and 3.95 percent a year ago. The 15-year fixed-rate average jumped to 4.15 percent with an average 0.4 point. It was 4.08 percent a week ago and 3.19 percent a year ago. The five-year adjustable rate average rose to 3.87 percent with an average 0.3 point. It was 3.82 percent a week ago and 3.07 percent a year ago. "Mortgage rates so far in 2018 have had the most sustained increase to start the year in over 40 years," Sam Khater, Freddie Mac's chief economist, said in a statement. "Through May, rates have risen in 15 out of the first 21 weeks (71 percent), which is the highest share since Freddie Mac began tracking this data for a full year in 1972." The Federal Reserve released the minutes from its May 2 meetings earlier this week. Officials indicated they are unlikely to hasten increases to their benchmark rate. The next interest rate hike is expected in June. "The minutes suggest that the [Federal Open Market Committee] remains committed to a gradual withdrawal from the remnants of its crisis-era policies, rather than a more aggressive withdrawal as had been suggested in several recent speeches," said Aaron Terrazas, senior economist at Zillow. "Absent any geopolitical surprises, financial markets should be quiet going into the long holiday weekend, but expect more movement next week leading up to next Friday's jobs report." Bankrate.com, which puts out a weekly mortgage rate trend index, found that nearly half of the experts it surveyed say rates will rise in the coming week. Shashank Shekhar, CEO at Arcus Lending, disagrees. He expects rates to remain unchanged following the holiday weekend. "After touching a seven-year high, mortgage rates expectedly went down a tad last week," Shekhar said. "However, there is no reason for that downward trend to continue to anything significant. The Fed is still expected to raise the rate again in June with odds currently split between the probabilities for three or four increases for the year as a whole. With no major policy change expected from Fed and a short week because of Memorial Day, should mean a mostly stable market with mortgage rates not changing much for the week." Meanwhile, mortgage applications declined again last week, according to the latest data from the Mortgage Bankers Association. The market composite index - a measure of total loan application volume - decreased 2.6 percent from a week earlier. The refinance index fell 4 percent, while the purchase index dropped 2 percent. The refinance share of mortgage activity accounted for 35.7 percent of all applications. "As a result of rising rates, refinance applications continued to decrease, with our refinance index hitting its lowest level since December 2000," said David Stevens, MBA president and CEO. "Purchase applications decreased over the week, but the average loan amount for purchase loans increased to over $320,000 after averaging around $317,000 for the past four weeks, likely a sign that inventory for lower priced homes remains low and the mix is still skewed toward larger loan balances,." said David Stevens, MBA president and CEO.

koverda 8y ago

Can someone with a background in econ / real estate weigh in on this a bit? Curious to hear some opinions on the housing market within the context of rising rates.

ChuckMcM 8y ago
Disclaimer: I'm just an enthusiast. Generally, in most discussions of the cost of housing, people discuss this expense in terms of a fraction of your income. In the US, a number of advisory articles and books consider between 25 and 30% of your gross take home pay as a "reasonable" amount of your income to pay for housing. So if you make $120,000 a year, that is about $3,000/month as 1/3 of your gross take home salary. According to the FED income growth has been fairly static over the last decade so that 1/3 number has been fairly static as well. [1] Given those two observations, you can derive the impact of rising interest rates on home sales, which is to say that as the rates rise, the monthly payment will rise, and that will put homes out of the 25 - 30% window for people. Historically that means a slower sales cycle and downward pressure on house prices (which keeps the payments at the lower level). If there is a commensurate rise in real wage growth it won't slow down the housing market and the banks will make more money. If wages stay stagnant the housing market will cool off and if it does so for long enough prices will come down as people who have to move will feel pressure to lower the price in order to have the sale go through. [0] https://www.google.com/search?q=what+percentage+of+my+salary+should+I+spend+on+housing https://www.google.com/search?q=what+percentage+of+my+salary... [1] https://fred.stlouisfed.org/series/LES1252881600Q https://fred.stlouisfed.org/series/LES1252881600Q
otterley 8y ago
For one, the Federal Reserve has been raising the overnight rate it charges banks. Commercial lenders typically try to maintain a certain interest rate "spread" between the Fed's overnight rate and the rates they charge mortgagors, so if the Fed's rate goes up, all lending rates tend to go up in tandem. (This is called "indexing.") In the past year, the Fed's base rate has gone up 75 basis points (0.75%) and it looks like mortgage rates have basically gone up in lock step (actually a bit less -- last year a 30-year fixed was about 4.05%, today it's about 4.61%). Usually, the Fed raises rates when it has significant inflation concerns -- so it's most likely the overall inflation risk that's driving increased rates across the whole market, and not something that points to an overheated real estate market in particular.

conwaytwitty 8y ago

What drives the interest rates in the us? In europe my loan is tied to the euribor 3month rate, which has been negative for ages and hasn't shown any signs of rising. I remember having an argument on some webforum with some non european guy that could not believe my current interest rate is close to zero (mostly just fees collected by the bank).

otterley 8y ago
The Federal Reserve Bank ("The Fed") sets the base rate (i.e. the "overnight rate") from which commercial banks can borrow. Those banks, in turn, lend to debtors of all sorts, adding various risk premiums to the interest rates along the way. More info: https://www.federalreserve.gov/aboutthefed/structure-federal-reserve-system.htm https://www.federalreserve.gov/aboutthefed/structure-federal...
- conwaytwitty 8y ago
  Sounds similar with a base reference rate + lender's margin (in finland currently like 0.2-0.5% for house loans), but for some reason the base rates are positive in the us? After 2008 in europe the rates took a dive and have been negative for a few years.
  - einarvollset 8y ago
    Doesn’t work like that in the US. Most mortgages are fixed rate for the duration of the mortgage.
vostok 8y ago
> What drives the interest rates in the us? This is a very complicated question. There have been periods where short rates go up but 30y mortgage rates are unched or only up small or even down. I think most people use 30y fixed rate mortgages in the US.
ckinnan 8y ago
U.S. variable rate mortgages are usually indexed to Libor or U.S. treasury rates.

Bucephalus355 8y ago

FYI, housing prices can rise as well as fall for periods of 40-50 years and this has been shown in the historical record. The Journal of Real Estate Economics has a fascinating article from 2011 which goes into this in detail, by looking at the price of land / various housing structures in Manhattan and Chicago from 1920 to 1960. By 1932, housing prices had dropped nearly 70% from their 1929 peak. If you had bought a 1-story house in Manhattan in 1929, it would not be until the mid-1960’s that you got to just break-even, let alone made any money. http://www.people.hbs.edu/tnicholas/anna_tom.pdf http://www.people.hbs.edu/tnicholas/anna_tom.pdf Also for those curious, I suggest you search “home prices” on https://images.google.com https://images.google.com. The very first image is so laughable, and such a suggestion of the times we are in. This will not end well.

dcosson 8y ago
It'll arguably end even worse if they keep going up though.
- ChuckMcM 8y ago
  I'll take that argument :-). If we enter a deflationary spiral in housing it traps people with mortgages who find themselves owing more in their house than it is worth (we saw that after the Mortgage meltdown). Where as if the prices continue to rise, we see people who would prefer to own houses kept out of the market, but their mobility is not impacted. Of the two scenarios, I consider the deflationary one "worse" in terms of its impact on more people.
  - oculusthrift 8y ago
    they can always sell the house and take the loss. just like a stock bought on a loan. don’t get why it’s preferable that someone can’t afford a house rather than someone who already has a house no longer being able to afford it. that’s like saying no matter how big of a mortgage i take it’s immoral for something to happen where i can’t afford it anymore
    - 8y ago

sk5t 8y ago

TLDR: rates are still very low, but have increased a skosh with some consistency over the past several months, the meaningfulness of which statistic is here unsupported.

mirimir 8y ago

Missing from this article is that mean 30-year rates have dropped more-or-less steadily from 9.25% in 1991, to 3.65% in 2016.[0] Also, even "rising at a pace not seen in almost 50 years" seems iffy. Mean 30-year rates increased from 8.85% in 1977, to 16.64% in 1981. Rates increased at 2%-3% per year during 1977-1981, vs an 0.8% increase from May-17 to May-18. 0) https://www.valuepenguin.com/mortgages/historical-mortgage-rates https://www.valuepenguin.com/mortgages/historical-mortgage-r... Edit: Maybe they're adjusting for inflation. But they don't say so, if they are.

aphextron 8y ago
The late 70's/early 80's were a time of massive inflation. Take any interest rates in this time period with a grain of salt.

mephitix 8y ago

I'm not an expert at all in this - but it seems like now is a great time to be a real estate investor? Given that interest rates will rise, there will be more demand in the rental market. I don't think REITs will be a good option because of the potential for higher interest rates but investing in a property, locking in that interest rate, and generating positive cash flow from rent would be a sound decision?

ramen-san 8y ago
5 years ago was a great time to invest in real estate. Today is probably okay, though prices have risen dramatically across the board (even the cities that got crushed in the recession have risen past pre recession levels), and rates are rising. Returns are getting compressed. Still good deals out there, but the risk/reward profile is shifting in the wrong direction. For more on real estate investing, I write a lot on the topic here: https://ramenretirement.com/ https://ramenretirement.com/
- mephitix 8y ago
  I guess I should rephrase - now is a good time compared to the foreseeable future? As in, next couple of years it will be a worse time. I actually bought a house 5 years ago, and I really feel I totally lucked out. Back then though, the fear of rising interest rates scared me into buying. Like you, I don't expect those type of returns with any investment I make now... but I was thinking about diversifying my finances, and moving money away from stocks into property real estate. I know that I'll have to be much more diligent about finding the right market/deal. I'm using Bigger Pockets at the moment which is quite an amazing resource. Thanks for pointing me to your site too.
  - ramen-san 8y ago
    Yes - if rates continue rising, along with prices, then returns will get compressed. Check out my analysis of that dynamic here: https://ramenretirement.com/2018/05/16/interest-rate-impact/ https://ramenretirement.com/2018/05/16/interest-rate-impact/ Doesn't mean you shouldn't invest - just figure out what sort of returns you're willing to accept (along with the corresponding risk / cushion you need), and hold that line when you run your diligence. FWIW, I think you can still find single family investments in the midwest that will generate 8%+ cash on cash returns (after fully accounting for all direct, and reserved expenses). That's still a pretty good return, but getting harder to find. It's hard to say when the market will soften or correct, so a dollar-cost-averaging approach to buying RE is probably a good idea (i.e. buy a rental property every quarter, or every half year.). Given that pretty much everything is going right in the economy right now, my investment stance is more conservative. It's not a bad time to buy, but it's definitely not a fire sale. Bigger Pockets is a great resource. Drop me a line if you ever want to chat in more detail. I've gone pretty deep in the whole space, and have a background in investing and finance.

ProfessorLayton 8y ago

Rising rates are going to cause havoc here in the Bay Area, and other metro areas with extreme cost of living expenses and NIMBYism due to the following: - Interest rates were amazingly low in 2016. Many got their 30 year mortgages locked in at 3.5%, or we’re able to refinance their existing one into that. - Rising rates may slow housing price increases, but due to NIMBYism, I don’t foresee them coming down substantially, if at all. The Bay Area recovered from the housing crash swiftly. In a normal market high interest rates should cause prices to come down since people can only afford a certain monthly payment, but an artificially constrained market is not normal. - Those locked into an amazing interest rate are inscentivized to hold on to their homes, further reducing liquidity in the housing market. Combine that with other incentives like Prop 13, ridiculously low SALT deduction and lowered interest write offs for new mortgages in new tax bill, and you have a recipe for disaster. - Further stratification between those who can afford to buy in these markets vs those who can’t. I suppose interest rates could fall again, they were also at record lows in 2013, rose, and fell again in 2016. Tl;dr rising interest rates are going to freeze an already illiquid housing market in SFBA, NIMBY metros. Edit: I would love to read why someone disagrees with this analysis instead of just a downvote

usaar333 8y ago
Agreed that it is quite plausible this won't cut housing prices - and may even raise them - contrary to what might be expected from basic econ. This notably happened at the start of this year, where even though tax code changes made buying a house ~10% more expensive (relative to renting), housing prices kept riding, perhaps partially because existing owners also became more incentivized to hold because the code grandfathered in a $1M tax deduction. Nonetheless, I think "havoc" will be minor. It already makes little sense to buy in the Bay Area (https://medium.com/@usaar33/why-you-shouldnt-buy-a-home-in-the-bay-area-right-now-9eff37da8d6 https://medium.com/@usaar33/why-you-shouldnt-buy-a-home-in-t...) - and that fact will just continue to be true.
jgh 8y ago
Aren't "locked-in" rates typically renegotiated every 5 years or so? So if rates keep increasing the entire time some folks might be in for a rude awakening in 2021...

IloveHN84 8y ago

Stupid GDPR, the site isn't available

rvense 8y ago
It's not the GDPR that's stupid, it's whoever runs this site. Compliance isn't hard.
- scotty79 8y ago
  They complied. It wasn't hard.
icebraining 8y ago
http://web.archive.org/web/20180525050009/https://www.lmtonline.com/business/article/Mortgage-rates-have-been-rising-at-a-pace-not-12940865.php http://web.archive.org/web/20180525050009/https://www.lmtonl...
rorykoehler 8y ago
Just use a VPN if it bothers you so much. I had to VPN through the Netherlands to pop my GDPR blocking cherry.

xhruso00 8y ago

451 Unavailable For Legal Reasons Sorry, this content is not available in your region. Seriously???

mrep 8y ago
Most of the web is funded by targeted advertising. Are you seriously surprised that a lot of those websites are blocking EU users since they cannot make a profit off of them now due to GDPR?

cbayram 8y ago

Good. Home prices have been out of control. Cheap money along with mortgage lenders have done nothing but push home prices to absurd levels. Local governments are complicit in this exploitation as property taxes rise/reset, giving them a skin in the game. The only suckers are the home owners, new and existing alike. They are being exploited by usury and repayment of an unreasonable debt on a home ,which without lender money would cost significantly less. Some long term residents are being priced out due to rising taxes. Remember, the home value gains aren’t realized until you sell whereas the interest payment and property taxes are each and every year. This dynamic is turbulent and bad for health and continuity of communities. Car and student loans are similar. It’s not suprising that tuitions are out of control. Like with housing, the school administrators are complicit. Student loans are perhaps worse. One can’t default on a student loan but the rates are 6-7%+ nevertheless. Securitization of debt in dwelling, education and transportation are just three examples of exploitation of the individual. The irony that some of this liquidity is your very own retirement funds is not lost on me. A self-feeding loop. One must work their entire life, often in misery to repay these absurd prices. For me this is enslavement. Ideals aside, this is reality. Such is the system and life. It’s survival. Having this perspective helps me refrain from being trapped and make sensible decisions. What’s the justification for this premium on this debt? “Umm, we provide liquidity to the very asset bubbles we create. We assume the risk of default on the loan which in reality Uncle Sam insures is against. Oh and also, we can use that money in one of the other markets that exist for us to exploit.” Tell me again, what risk are these institutions really taking? END RANT

nwatson 8y ago
A recent "The Indicator from Planet Money" podcast episode "Rising Rates Vs. The Housing Market" explains how housing price declines don't necessarily follow from rising mortgage interest rates.
- steveax 8y ago
  Yeah, there’s less of a relationship between those than one would think. Slightly related: it’s time to phase out the mortgage interest deduction and plow that revenue into affordable housing.

Danski0 8y ago

Reading comments here it seems that US house owners consider 3.5% low, is this correct? Article is locked for EU readers. This just makes me even more scared about Swedens new normal that is 1.50% (1.00% after tax deduction). Today I even get offered 0.99% (0.70% after tax deduct). What is currently "normal" rates in different regions in the world?

erikb 8y ago
Think about it the other way around, that you would lend someone a significant amount of money, that you could also invest in stock, into your own business etc. I think 1.5% is really low, when you think about it that way.
deleted 8y ago
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jbarham 8y ago
3.5% in the US is probably adjustable rate. 30-year fixed rate is around 4.66% (http://www.freddiemac.com/pmms/ http://www.freddiemac.com/pmms/). Note that, AFAIK, the US is the only country in the world to offer fixed 30-year mortgage rates. Here in Australia five year fixed rates are around 4.79%. Swedish rates are crazy low. Lots of people are going to go bankrupt when they're forced to renew at higher rates.
- IkmoIkmo 8y ago
  US is definitely not the only 30y fixed country in the world... how many countries are you familiar with? For example, the Netherlands has done 30y since forever. Current rates are between 2.5% (best case) and 3% (worst case with 0 down) for 30y fixed. 5y fixed is 1.2% to 1.6%, it's absolutely ridiculous.
craftyguy 8y ago
3.5% is low in the US, but it also depends on the duration and type of the loan. Rates below 2% would be exceptionally rare, but you can't compare rates if you don't also consider the other terms of the loan.. Are your <1% loans for the full price of the home, or a reduced price after accounting for you paying for some percentage in cash? (in the US, known as a down payment)

kristianp 8y ago

As someone not living in the US, having a loan rate fixed for 30 years seems insane. So if interest rates go up in the US more than Freddie Mac expects, they are going to lose money on all their loans for 30 years? Seems like an unsustainable risk to me. In Australia we have 4 year fixed home loan rate, and most loans are variable rate.

ComputerGuru 8y ago
No, that’s when they get another bailout ;)
carlivar 8y ago
Are you aware of the amortization schedule? Interest portion of the payoff is front loaded. It is a very good deal to write a mortgage no matter what the rate is, assuming default risk is low.
- kristianp 8y ago
  Is that visible to the customer, or only in the bank's accounting?
  - carlivar 8y ago
    Extremely visible. You can create one yourself via many free web tools. Just Google it.
    - eco 8y ago
      They included a full amortization schedule in my mortgage signing documents. I imagine they always do but don't know for certain.

koliber 8y ago

It's May 25th, 2018, and 9 hours and 14 minutes ago GDPR came into effect. I tried opening this link, which I imagine links to some news or media outlet. This is what I see: 451 Unavailable For Legal Reasons Sorry, this content is not available in your region.

jgh 8y ago
heh yeah, same here...in france.
TomK32 8y ago
at least they admit to doing shady business with the users' data.
- icelancer 8y ago
  AKA tracking a visit or something. GDPR is so blanketed that some sites are just turning off access since it's easier to do.
Luuseens 8y ago
Best of all, if you check the traffic, you still see it sending your info off to Google Analytics.
- Z-Widwil 8y ago
  Try uMatrix: https://github.com/gorhill/uMatrix https://github.com/gorhill/uMatrix Super simple web connection switchboard by Gorhill (person behind uBlock Origin). It allows you to assign certain addresses and elements to block calls from/to. For example 'www.google-analytics.com'. I use it as a catch-all when loading a web page, then release elements that I want to load.
carlmr 8y ago
I see the same from Germany.
yread 8y ago