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"Today's low mortgage interest rates and tight supply of homes for sale are "creating a kind of witch's brew of extreme price spikes," says Stan Humphries, Zill

by aresant 13y ago

"Today's low mortgage interest rates and tight supply of homes for sale are "creating a kind of witch's brew of extreme price spikes," says Stan Humphries, Zillow chief economist. (1) Logic tells me that when the all-important "monthly payment" rises, as a result of higher mortgages rates, that is going to be instantly detrimental to the housing market to a nearly equal degree. But when I've asked this question of people I know in real estate (from realtors to investors) the answer is "yah but there are a lot more factors at work" What are those factors? The FED is going to raise rates and when they do is this going to leave a lot of recent homebuyers holding the bag, again, on an inflated asset? (1) http://www.usatoday.com/story/money/business/2013/05/28/home-prices-climbing-but-not-in-bubble-territory/2366953/ http://www.usatoday.com/story/money/business/2013/05/28/home...

muzz 13y ago
Mortgage rates do not affect cash buyers. Despite low interest rates-- and high dollar amounts-- there are surprisingly many cash buyers in the Bay Area. http://sanfrancisco.cbslocal.com/2013/04/03/rise-in-all-cash-home-sales-frustrates-bay-area-first-time-buyers/ http://sanfrancisco.cbslocal.com/2013/04/03/rise-in-all-cash...
- Domenic_S 13y ago
  This is secondhand so take it for what it's worth, but I've heard that a lot of these all-cash offers are folks who tap their extended family for spare cash, buy the house, then "re"-finance into a normal mortgage and pay the family back. Rates do affect cash buyers who use this strategy. Also, many cash buyers are flippers, but the flippers need to sell to normals who take mortgages. So impact there, too.
  - prostoalex 13y ago
    I don't think you can refinance, what you can do is take out a home equity loan. Regardless, you can get those at fixed rates or (currently cheaper) ARM rates, I'd imagine someone intending to stay in the Bay Area would choose the former.
- tomkarlo 13y ago
  Buyers don't buy in a vacuum. When mortgage rates rise, it reduces the buying power of a large portion of the market, and the value of the homes themselves decline as a result. Yes, a cash buyer could still pay the same amount, but why would they?
  - muzz 13y ago
    In efficient markets, buyers are theoretically not irrational either. In theory, the cash buyers of today have factored in their expectations of rising interest rates and the effect on home values going forward.
    - tomkarlo 13y ago
      Does anyone really still believe that real estate represents an efficient market? Regardless, if someone did believe that, and factored in expectations of rising rates, they simply wouldn't be a buyer in this market.
dragonwriter 13y ago
> Logic tells me that when the all-important "monthly payment" rises, as a result of higher mortgages rates, that is going to be instantly detrimental to the housing market to a nearly equal degree. The big thing right now isn't interest rates/monthly payment (though that's a factor that reinforces the high prices). Its who is buying and selling and which homes (and how few) are on the market. > What are those factors? The big one is the broader economy and credit markets. > The FED is going to raise rates and when they do is this going to leave a lot of recent homebuyers holding the bag, again, on an inflated asset? Not really, because the big price spikes recently are because there are a very small number of homes selling and they tend (disproportionately as compared to other times) to be higher end homes and higher-end buyers and being paid for with cash or at least very large % down. So the median prices look high, but there's not a lot of people involved, and even for the number of buyers not a lot of exposure to interest rate hikes.

by aresant 13y ago

muzz 13y ago

Mortgage rates do not affect cash buyers. Despite low interest rates-- and high dollar amounts-- there are surprisingly many cash buyers in the Bay Area. http://sanfrancisco.cbslocal.com/2013/04/03/rise-in-all-cash-home-sales-frustrates-bay-area-first-time-buyers/ http://sanfrancisco.cbslocal.com/2013/04/03/rise-in-all-cash...

Domenic_S 13y ago
This is secondhand so take it for what it's worth, but I've heard that a lot of these all-cash offers are folks who tap their extended family for spare cash, buy the house, then "re"-finance into a normal mortgage and pay the family back. Rates do affect cash buyers who use this strategy. Also, many cash buyers are flippers, but the flippers need to sell to normals who take mortgages. So impact there, too.
- prostoalex 13y ago
  I don't think you can refinance, what you can do is take out a home equity loan. Regardless, you can get those at fixed rates or (currently cheaper) ARM rates, I'd imagine someone intending to stay in the Bay Area would choose the former.
tomkarlo 13y ago
Buyers don't buy in a vacuum. When mortgage rates rise, it reduces the buying power of a large portion of the market, and the value of the homes themselves decline as a result. Yes, a cash buyer could still pay the same amount, but why would they?
- muzz 13y ago
  In efficient markets, buyers are theoretically not irrational either. In theory, the cash buyers of today have factored in their expectations of rising interest rates and the effect on home values going forward.
  - tomkarlo 13y ago
    Does anyone really still believe that real estate represents an efficient market? Regardless, if someone did believe that, and factored in expectations of rising rates, they simply wouldn't be a buyer in this market.

dragonwriter 13y ago

> Logic tells me that when the all-important "monthly payment" rises, as a result of higher mortgages rates, that is going to be instantly detrimental to the housing market to a nearly equal degree. The big thing right now isn't interest rates/monthly payment (though that's a factor that reinforces the high prices). Its who is buying and selling and which homes (and how few) are on the market. > What are those factors? The big one is the broader economy and credit markets. > The FED is going to raise rates and when they do is this going to leave a lot of recent homebuyers holding the bag, again, on an inflated asset? Not really, because the big price spikes recently are because there are a very small number of homes selling and they tend (disproportionately as compared to other times) to be higher end homes and higher-end buyers and being paid for with cash or at least very large % down. So the median prices look high, but there's not a lot of people involved, and even for the number of buyers not a lot of exposure to interest rate hikes.