Sep212015
Rising mortgage rates don’t care about homebuyers’ attitudes
Rising mortgage rates are a mechanical limitation that offers no respect to consumers’ attitudes one way or the other.
Buyer psychology matters, but not as much as the math of mortgage financing. Whatever happens to mortgage rates, people will still shop for homes, and they will still want to buy. Higher mortgage rates will force them to borrow less irrespective of the borrower’s attitude. So while it may be interesting to note whether or not rising mortgage rates influence homebuyers’ attitudes, it’s completely irrelevant to how much they can borrow to buy a house.
If mortgage rates go from today’s 4% to 5%, it will require a huge increase in aggregate wages to compensate. For example, each $100,000 of borrowing costs $477.42 at 4% amortized over 30 years. At 5% mortgage rates, the payment rises to $536, a difference of $59 per month. While that doesn’t sound like much, it represents a 12.4% increase in borrowing costs. Convert that to a $600,000 Orange County mortgage, and the increase is $354 per month.
Since house prices are at the limit of affordability and sales volumes are weakening, in order to increase sales and increase prices by 4%, we need an economy that produces aggregate wage growth of 16.4% to offset the 12.4% increase in borrowing cost. Isn’t this something homebuyers should be worried about?
Economists glibly make comments about the impact of rising mortgage rates without taking the time to reason through what would really happen. If any of them had done the math, they would be far less sanguine about the impact of rising mortgage rates.
[In the following video, Nela Richardson ignores the obvious math problems associated with high mortgage rates, then repeats the false “tight credit” meme. IMO, she isn’t very bright.]
Do homebuyers really care about rising rates?
Diana Olick, Thursday, 17 Sep 2015
Do homebuyers care about rising rates?
The short answer is: sort of. Potential homebuyers certainly care if the monthly payment goes up for the same house they were considering a month earlier. That concern, however, comes in third place after the ability to get a mortgage and the ability to find a home they like, according to a survey conducted this week by Harris Poll on behalf of Trulia.
The silliness of polls like this is glaringly obvious. Homebuyer attitudes don’t necessarily reflect what’s really important.
It’s like polling people about what parts are most important on their car. People might rank the motor as more important than the brakes, but when you think about it, if the motor doesn’t work, the car doesn’t move, but if the brakes don’t work, the car doesn’t stop. The latter is far more dangerous — and thereby far more important.
Forty-two percent said they expect mortgage rates to increase over the next six months, while 20 percent think rates will stay the same. Of their biggest worry, 26 percent named ability to qualify for a home loan compared with 24 percent who pointed to rising rates. Millennials, ages 18-34, are even more concerned about their access to credit than about their rate. Thirty-six percent of millennials polled said access was their primary concern versus 26 percent indicating rising rates.
If the Fed raises rates a quarter point, that does not directly correlate to a quarter-point increase in mortgage rates. The average rate on the 30-year fixed loosely follows the direction of the yield on the 10-year Treasury bond. If rates did move a quarter-point higher, they would still be lower than they were in 2013, when the Federal Reserve first announced it would start to “taper” its investment in mortgage-backed bonds.
Realistically, rising mortgage rates won’t cause pain until they reach 4.5%. At that point, the cost of money will start to hurt sales. When rates hit 5%, appreciation will grind to a halt, and sales will really suffer.
Nearly two-thirds of the consumers polled said the maximum price they would pay for their first or next home was $250,000. With 20 percent down, the rate increase could mean some buyers would qualify for less on a mortgage, but it would not turn those buyers away.
This is not clear thinking. If rates rise without significantly higher wages, marginal buyers get priced out. Some buyers may opt to substitute down in quality just to own, but many others will not. A certain percentage will be unable to afford anything in the market, causing sales to plummet.
Consumer confidence in both the overall economy and personal balance sheets are what drives buyers to make what is arguably the largest investment they will ever make A hike in interest rates is a signal that at least the Federal Reserve is gaining confidence in the economy.
“If the Federal Reserve decides to raise rates this year, it will be because they are confident that the economy will weather any short-term shocks. Over the longer term, the strong economic fundamentals, including robust job growth, better-paying jobs, rising wages, strong consumer demand, and demographic currents in favor of the housing market will boost demand for homes,” said Selma Hepp, Trulia’s chief economist.
While the federal reserve may be confident the economy as a whole can absorb higher rates, it’s not clear that the housing market can. In my opinion, the Housing market is NOT strong enough to handle higher mortgage rates.
What the housing market needs right now is less anxiety over potentially rising mortgage rates and more houses for sale.
Ignore the realtor spin. The angst of market participants about rising rates is well founded.
Prices fall but cost of ownership rises
Many people who want to buy a house hope for lower prices because they want to spend less on housing. Unfortunately, it’s far more likely that even while home prices drop, the cost of owning that house will continue to rise for financed buyers.
If mortgage rates do rise to 5% and borrowing costs increase the commensurate 12.4%, house prices may drift lower, perhaps even 5% or more lower, but even if that were to occur, the cost of borrowing money to own that house will actually go up simply due to the rising cost of borrowing.
If you’re waiting for lower prices to lower your monthly cost of ownership, don’t hold your breath. The house you want, the must-sell inventory you’re waiting for, that’s being occupied by an underwater borrower surviving on a loan modification. Whatever happens to resale prices, you can count on the monthly cost of ownership going up, at least as long as the banks have any say in the matter.
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Jeb Hensarling Proves He Is Mindless Shill for Financial Elites
House Committee Determines Dodd-Frank Limits Americans’ Financial Freedom
On the 228th birthday of the U.S. Constitution on September 17, the House Financial Services Committee posed the question as to whether or not the Dodd-Frank Wall Street Reform Act of 2010 has provided the country with more or less freedom.
The hearing, titled “The Dodd-Frank Act Five Years Later: Are We More Free?” was the third in a series of hearings examining the impact of the controversial legislation on the prosperity, freedom, and financial stability of American consumers. The consensus of the Committee during the hearing was that Dodd-Frank has made Americans less free financially, having the opposite effect of what was intended.
“Dodd-Frank erodes the economic freedom and opportunity that empowers low income Americans to rise and generate greater shared prosperity,” Committee Chairman Jeb Hensarling (R-Texas) said. “Dodd-Frank moves us away from the equal protection offered by the impartial rule of law towards the unequal and victimizing rule of political bureaucrats. Of all the harm Dodd-Frank inflicts, this is the most profound and disturbing.”
Hensarling went on to say that Dodd-Frank exemplifies the “insidious belief” among those in Washington that the American people cannot be trusted to make financial decisions, so Washington must do it for them; and “Without Washington’s coercive mandates, we just might pick the wrong health plan, the wrong mortgage, the wrong financial advisor, maybe even—God forbid—the wrong lightbulb!”
According to a press release from the committee, three key takeaways from the hearing are:
* Dodd-Frank has led to a less dynamic economy and a command and control system where regulators dictate credit offerings; as a result, the freedom and individual choices of consumers are sacrificed
* Dodd-Frank has given government regulators power to not just make credit products less available and more expensive, but to take them away
* Dodd-Frank’s “torrent of top-down regulations” has adversely affected small businesses, which in turn prevents opportunities to grow the economy and create jobs. The ones hurt the most by this are lower- and middle-income Americans. The costly rules imposed by Dodd-Frank have resulted in the weakest economic recovery post-World War II.
“Freedom and an effective financial services system go together,” said Todd Zywicki, George Mason University Foundation Professor of Law, a panelist at the hearing. “Freedom to gain access to capital to start and grow a business, freedom to buy a home and provide for your family’s financial security, freedom to choose those whom you entrust with your hard-earned money provide the means for pursuing the American dream.”
Most of what he’s saying, is true, AND IT IS THE DESIRED EFFECT!
“Hensarling went on to say that Dodd-Frank exemplifies the ‘insidious belief’ among those in Washington that the American people cannot be trusted to make financial decisions, so Washington must do it for them…”
Yes, you’re right. We all want things we can’t afford and are willing to sacrifice the future to get things now. To the extent reasonable laws/regulation can prevent us from damaging our financial lives, it should be considered.
Wait ’til the Bureau kills small dollar lending (payday loans and auto title loans). These politicians and other mouthpieces will go ape-$hit crazy.
The housing bubble and the Ponzi borrowing associated with it proves beyond any doubt that the American people can’t be trusted to make good financial decisions, particularly if enabled by foolish lenders — another group that can’t be relied upon to make good financial decisions (See: 2008 bailouts).
I look forward to the impending death of payday loans and title loans. After they go out of business, I hope the lenders who provide these loans suffer the loss of everything they have — a fate they inflicted on millions of others.
It is funny that their criticism are actually features of the regulation. If the banks are going to receive tax payer money for bailouts then the government needs to have harsh regulations against them.
I don’t personally believe philosophically in the regulations but then again I was willing to allow the banking industry to collapse and wipe out all bond and stock holders. Apparently that is intolerable to our political class.
+1
Regulation necessitates further regulation. Next thing you know rates are at zero, GSEs control 90% of the mortgage market, and there’s money missing out of your wallet on the night stand.
For this generalization to make sense, you must then support zero regulation in banking. Is this your position? Let bankers do whatever they want and let the market correct issues?
Naturally, the first regulation will be a deposit insurance of sorts, which becomes a taxpayer expense. So, yes. I want zero regulation of the banking industry. Depositors will care which banks they deposit to. Some people will lose money and some banks will go out of business.
This is much preferred to the systemic, hyper-regulated situation we currently face.
We tried that in the 18th and 19th century, and it was found to be a restriction to steady commerce. Nobody had the time to figure out which banks were well managed and which ones were not. Banks often changed management, so even if you had a sound bank, you had no assurance it would be sound in the future. This instability in the banking sector lead to numerous bank runs and panics, and it was a widespread hindrance to economic growth. By passing laws regulating banks, it provided much needed standardization, increasing trade and commerce.
Much of what you advocate is a step backward. The laws we have in place were passed for a reason, and although many of these laws have unwanted side effects, the disease they cured is more problematic than the side effects they create. The chances of a rollback of laws to the kind of frontier environment you advocate is zero. It simply isn’t going to happen because it would bring back the old problems the laws were designed to correct.
Proof Economists are Clueless Herd Followers
82% of Economists were wrong about September Rate Hike
Most private forecasters polled continue to expect the Federal Reserve to start raising short-term interest rates in September, though a growing number think the central bank will wait until December.
About 82% of economists surveyed over the past week [July 2015] by The Wall Street Journal picked September for the first rate rise, while 15% said the Fed would wait until December. In last month’s survey, 72% chose September and 9% went for December.
“The Federal Reserve continues to message that it intends to normalize rates this year, and with rebounding activity in the coming months, September continues to be the leading candidate,” National Association of Manufacturers chief economist Chad Moutray said.
In April, a stretch of weak economic data prompted economists who had been split between June and September to shift their predictions for the Fed’s first rate increase toward the Sept. 16-17 policy meeting. September has remained economists’ top choice in recent months despite turmoil overseas.
A smaller but growing number of economists think liftoff will come later in 2015. The 15% who this month predicted a first rate increase in December is up from none in March’s survey.
[I am in the tiny minority suggesting interest rates will not rise in 2015.]
More ZIRP from the Federal Reserve surprises exactly no one
Actually, it surprised 82% of economists
It should have come as no surprise that the Fed decided not to raise the federal funds interest rate this month, as pointed out in Trey Garrison’s article in HousingWire on Sept. 17, “It’s official: Fed punts on interest rate hike.” It was no surprise because the Fed’s decision validates the belief that the economy is not in recovery, and in truth is precariously perched on the edge of a precipice.
The statement from which Garrison quoted the Federal Open Market Committee regarding its decision is just another example of the kind of spin (read: BS) the media and government agencies and other organizations spew forth to try to make the general public believe that things are better than they actually are:
“To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to ¼% target range for the federal funds rate remains appropriate.”
Rubbish.
The Fed made their decision because it has boxed itself in with this failed program of artificially propping up Wall Street, and knows full well that with the stagnating world economic picture, turmoil in Syria that is about to rock the foundation of Europe, the quite noticeable volatility of our stock market, and events taking place in China, Japan and elsewhere, they could not risk raising interest rates… yet.
The Fed knows it must raise interest rates soon, because their failed monetary policy has not yielded the expected outcome of a stronger economy, higher true employment rates and price stability. But, while it was widely believed prior to the wild stock market activity last month that the Fed would surely raise the interest rate, the chaos surrounding those sharp declines and volatility caused them to “punt,” as Garrison’s headline suggested.
Who makes the case for modestly declining home prices?
Bank of America/Merrill Lynch ABS analyst Chris Flanagan, that’s who.
The last time the Fed began a tightening cycle was in mid-2004, he notes.
“A little over one year later, in September 2005, (annual) home price growth peaked at 14.5%. Two years later, in July 2006, home prices peaked. The subsequent story, of course, made history,” he writes in a client note. “This time around, home price growth peaked at 10.9% in October 2013, a few months after taper talk in May 2013.
“Home prices have yet to peak, but with the Fed tightening cycle soon to be underway (we’ll see on that but we’ll assume for now that’s true), it’s a good time to consider whether a peak in home prices is on the horizon and what might lay in store on the other side,” Flanagan says
He says he see little chance of a repeat of the epic decline in home prices of 10 years ago. But, with that said, he underscores that he does believe that home prices are likely to peak at some point in 2016, and experience modest declines, or at a minimum flat line, in subsequent years.
“This is not meant to be an uber-bearish assessment of home prices. The projection is for a net decline of roughly 2% between June 2015 and late 2019, a fairly small number,” he says. “Moreover, we still see 3% upside potential between June 2015 and October 2016. We are mindful that policy makers may have something to say about falling home prices, and that renewed intervention could stem the decline that our model calls for. But, for now, we simply review what our home price model is suggesting as the future course for home prices.”
[Finally, an economist who understands]
“But, for now, we simply review what our home price model is suggesting as the future course for home prices.”
A model is only as good as its assumptions. Price growth depends on rate growth. BofA has to assume an interest growth rate for their model. What is it? The last tightening cycle in 2004-6 was responding to rapid wage growth and the largest housing bubble, ever (certainly by volume, and maybe percentage).
Second, the last peak in house prices was based on affordability products, not rates. Raising rates has no impact on prices when incomes aren’t verified. So there is little causation between what happened to prices in 2006 and raising rates in 2004, much less correlation with raising rates at some unknown rate today and home prices in 2019.
Third, stable home prices and rising rates is really the banking sector’s best-case scenario. Now that their solvency issues have been addressed, they can start earning better profits with higher rates. Interesting how their model supports their ideal situation — I would love to see the code.
Interest rates are a blunt instrument, so when the federal reserve raises the base federal funds rate, at some point, this will feed back to mortgage rates. While the broader economy may need cooling, the housing market probably won’t, but the range of policy options to stimulate housing is limited. The federal reserve may be forced to embark on Operation Twist 2.0 to drive down mortgage rates while other rates rise.
It’s hard to know how long-term rates will respond to raising short-term rates. Everyone thought that long-term rates would rise in 2004-6 as the Fed tightened. Beginning on June 30, 2004 the Fed tightened the federal funds rate from 1.00 to 5.25%, over the next two years. The 30yrFRM went from 6.29% to 6.68% over the same time period. The Fed then reversed course and dropped the rate back down to 2% over the next two years, and the 30yrFRM fell back down to 6.32%. I don’t see a whole lot of correlation between short and long term rates going up or going down. The FED may have to SELL MBS to push long-term rates up, if that is what they are trying to do.
Even this ‘fixer’ house (shack) in San Francisco lists for $350,000
San Francisco continues with the outrageous housing news, with this “dilapidated lean-to in the city’s Outer Mission district” house listing for sale for $350,000, according to an article in Fusion.
To truly appreciate the whopping price for this “fixer” home, look at this picture.
http://www.housingwire.com/ext/resources/images/editorial/BS_ticker/PDF/Ellie-Mae/Screen-Shot-2015-09-18-at-50950-PM.png
It gets better.
It sold for $500,000 over asking price…
Is this the difference between a bubble and froth?
Could it be that the land is valuable???
No, no way, the buyer who paid $850K is going to leave in that dump in SF LOL.
The reality is that the buyer will now pay over a million dollars in cash to build.
Yep. The land is worth whatever a finished house would sell for minus the construction costs and profit. If someone would pay $2M for a house in this neighborhood, the $800,000 purchase prices is fair-market value.
This listing reminds me of the “real homes of genius” series Dr. Housing Bubble used to publish. Something just doesn’t feel right when you see a piece of shit selling for such large sums.
For those selling ‘tear downs’, this is probably an opportune time to be getting out. Appreciation is slowing, but there aren’t that many red flags in the market yet, so it’s fairly easy to find a bag-holding buyer that intends to flip this in a couple years time.
“It’s a normalizing RE market wrapped in a ZIRP bubble” SARCASM
Auction.com Will Die as REOs Dry Up
In the case of Auction.com, EVP Rick Sharga, a panelist in the lab for the “Understanding Auctions” discussion, said his company has already begun the shift from distressed properties to non-distressed.
“When I joined Auction.com two years ago, I didn’t join the company to be there to watch the last foreclosure property fall off the auction manufacturing line. I knew then, because I’ve been following foreclosures for 13 years now, that we were looking at what was going to be diminishing pool of properties,” Sharga said. “So the notion was always to provide an online marketplace that provided a more efficient, more transparent, more flexible, faster way for people to buy and sell properties. We started on the distressed side because we were dealing with institutional sellers who were more sophisticated and less emotionally attached to a property. That’s given us the opportunity to build out the process and build our technology to where we’re ready to enter the consumer market. But the plan all along has been to be able to shift, as the distressed market gets smaller, into the broader, non-distressed residential retail market.”
Diversifying to adjust for the declining inventory includes expanding product offerings, according to Beane.
“In addition to selling REO properties as an asset manager, we have a valuations division, we have an HOA division, we have our own technology for valuations, and we do multiple products in multiple arenas,” Beane said. “We do origination evaluations and we do default evaluations. We’re protecting ourselves in a cyclical/countercyclical economy, and based on the trends, we’re able to cross-train our associates and grow our business through diversified product offerings in this industry. Protecting yourself by diversifying the approaching to the marketplace with different types of products is vastly important. It’s the reason for survival.”
They got their start during the savings & loan crisis if I remember right, so they’ve been through this cycle before. Most of their institutional business in the recent cycle came from Impac Mortgage, which had partial ownership in REDC/Auction.com. They’ve been positioning for the end of the REO gravy train for probably 5 years now including a cash infusion from Google Capital. They are operating as more of a tech start up at this point.
The only question is will their new model of auctioning non-distressed inventory be successful or not? I’ve heard mixed reviews from other investors. Some claim to have found good deals while other balk at the auction fees and other hidden gotchas in the buyer contracts they signed before bidding.
The Auction.com model does have the potential to disrupt the outdated, cartel-driven MLS system, so that is worth keeping an eye on.
I didn’t realize they’ve been around so long. They recently ramped up their staff, and they look and act more like a tech start up than a business that’s been around 30 years.
I don’t think the auction model will work for anything other than clearance. The new breed of online auction sites are all fronts for bankruptcy liquidations.
The auction model assumes multiple buyers want the same asset at the same time, and that isn’t how real estate sales works. Properties sit on the market for weeks at a time with no buyer interest, and even when buyers become interested, it’s usually only a few, not the dozens necessary for a vibrant auction market.
They will entice some bidders with bid discounts, but as soon as homebuyers realize they will never get a deal, the auctions will only be frequented by professionals who want the same discounts to fair-market value as REO buyers want. At that point, sellers are no better off using Auction.com than they are buying at the County courthouse.
I disagree that a wage growth of 16.4% is required to offset a 1% rise in rates that increases borrowing costs by 12.4%.
First of all borrowing costs only account for 2/3 of your home related expenses. So your cost of home-ownership goes up “only” 8.3%.
Second, not 100% of someone’s income is spent on shelter, so it is not reasonable that 16.4% wage growth is required, even for 12.4%, not to mention 8.3%. If their wages increase “only” 4.5%, 95% of potential home buyers would still have more disposable income left over even if their housing costs increase 8.3%.
I would pin the number at about 6% wage growth is required per percentage growth in mortgage rates to offset increased borrowing costs.
For borrowers who are already using a maximum DTI in order to qualify, the 12.4% increase in wages is necessary to afford the same house. The borrowing costs increase 12.4% when interest rates go up 1%, so unless the borrower is going to finance less — and thereby buy less house — the math is what it is.
Well, the rules are the rules.
I guess it’s not the actual ability to pay that counts so much as the DTI.
Forecast: As rates rise, banking industry shoves new “ability to pay” rules down Congress’s throats.
The whining about affordability will cause the entire industry to lobby for the “good ol’ days” when affordability products could keep the party going. The lobbying against Dodd-Frank will become intense.
But rates don’t have to go up by 1%. Do they? Rates have been around 4% for the last four years. During that time wages have been growing at a rate of ~2%/yr, or 8% total (ignoring compounding).
With anything, there is always a distribution. Assuming that 1/6 got 3% or more and 1/6 got 1% or less with the rest somewhere in the middle. So, ~17% are sitting at 12% more income than 4 yrs ago. With sales volumes remaining low, this small segment has an outsized impact on prices.
My point, if there is one, is that most of the 16.4% is already accounted for. If the Fed continues to slow-roll rate increases, as it has indicated, then wages can front-run rate increases.
This is the only way the Fed can be effective – as it is a much better economic brake than an engine. ZIRP takes the brake off, allowing the economy to grow, but does little to accelerate back up hill.
Slightly higher rates could be useful to bleed off excess economic momentum and redirect it into savers pockets. Alternatively, switch backs might offer a longer, but more practical route. In other words, lessen the grade (rate hikes) and extend the distance. The economic engine is what it is, and it can only manage so much resistance before stalling. A jet engine it is not, a 2-stroke it may be.
When the federal reserve does start raising rates, I suspect it will be a far more gradual slope upward than previous rate hikes, mostly due to the drag from housing. Instead of 1/4 point every six weeks, we might see 1/4 point every 3 to 6 months. With inflation under 2%, what’s the big hurry?
I don’t see any valid reason that rates need to be raised. I don’t see any valid reason that rates should be kept at zero either. If the market were to set the short-term rate, where would it be?
Years After the Real Estate Crash, Renters Are Still on the Rise
Nearly a decade after the housing crash, homeownership is still waning and renting is on the rise, according to U.S. Census data released Thursday.
The homeownership rate fell to 63.1% in 2014, down from 63.5% in 2013, according to an analysis of the American Community Survey data prepared by Jed Kolko, a senior fellow at the Terner Center for Housing Innovation at the University of California, Berkeley. The homeownership rate peaked at 67.3% in 2006 and has fallen steadily since then.
“It shows us ways in which the housing market is recovering very slowly,” Mr. Kolko said of the Census data.
Perhaps most surprising, single-family renting—initially perceived by many as a temporary solution for families who lost their homes due to foreclosure—continued to rise in popularity. The number of single-family rental households grew by 2.1% from 2013 to 2014, compared with 1.8% growth for households occupying multifamily rentals and virtually no growth in single-family ownership households.
Many families fled to single-family rentals after losing their homes to foreclosure during the crash because they could remain in a more traditional house in their own neighborhood. But the data show that many are choosing or being forced to linger there years after they lost their homes.
That likely reflects the long wait time of up to seven years before people who go through foreclosure can buy again. Stagnant wage growth and rising rents have also made it difficult for many people to save for down payments.
The number of occupied single-family rental units grew 34% from 2006 to 2014, compared to a slight decline in the number of single-family owned units. Even the hot multifamily rental market lagged in comparison to single-family rentals, with just a 12% growth in the number of units.
“The rise of single-family rentals looked like a recession response to lots of people losing their homes….It turns out that this trend continues,” Mr. Kolko said.
Despite fears about rising housing costs, for homeowners low interest rates have made it very affordable to own a home. Just 31.2% of homeowners with a mortgage are cost-burdened—meaning they spend more than a third of their incomes on housing costs—compared with 50% of renters.
Existing home sales stall in August nationwide
Let the spin begin
Existing home sales dropped in August despite slowing price growth and a positive turnaround in the share of sales to first–time buyers, according to the National Association of Realtors.
This follows three months of consecutive gains. None of the four major regions experienced sales increases in August.
Total existing home sales, which are completed transactions that include single–family homes, townhomes, condominiums and co–ops, fell 4.8% to a seasonally adjusted annual rate of 5.31 million in August.
This is well below analyst expectations of 5.5 million, and down from a revised 5.58 million in July.
Lawrence Yun, NAR chief economist, says home sales in August lost some momentum to close out the summer.
“Sales activity was down in many parts of the country last month — especially in the South and West — as the persistent summer theme of tight inventory levels likely deterred some buyers,” he said. “The good news for the housing market is that price appreciation the last two months has started to moderate from the unhealthier rate of growth seen earlier this year.”
The median existing home price for all housing types in August was $228,700, which is 4.7% above August 2014, when it stood at $218,400. August’s price increase marks the 42nd consecutive month of year–over–year gains.
“Home sales may have dipped below July’s high mark, but sales have still made healthy increases since August of last year —clearly showing housing is still on the rise despite the monthly fluctuations,” said Bill Banfield, vice president at Quicken Loans.
Total housing inventory at the end of August rose 1.3% to 2.29 million existing homes available for sale, but is 1.7% lower than a year ago (2.33 million). Unsold inventory is at a 5.2–month supply at the current sales pace, up from 4.9 months in July.
“With sales and overall demand higher than a year ago and supply mostly unchanged, low inventories will likely continue to limit options for those looking to buy this fall even with the overall pool of buyers shrinking because of seasonal factors,” Yun said.
I’m Hoarding Gold
http://www.ritholtz.com/blog/wp-content/uploads/2015/09/dilbert.jpg
+1. Storage avenues vary=)
I’ll buy when gold goes below $600.
Lenders carry the currency collapse risk costs.
Borrowers enjoy currency collapse risk rewards.
That’s when I would buy too.
If rates were to go negative, I would consider buying gold. At that point, a zero percent cash payment is better than losing money to the banks to stay in currency.
If they ever went negative the next step could be making gold illegal and confiscating it.
“So while it may be interesting to note whether or not rising mortgage rates influence homebuyers’ attitudes, it’s completely irrelevant to how much they can borrow to buy a house.”
Yes, but… homebuyer attitudes also influence rates.
I would love to get a 20% risk-adjusted return on my investments, but I would certainly take 15%, and be more-or-less content with 10. Those kind of returns are hard to come by in todays market. So, investors have a choice between 4% returns or no return at rates above that.
If buyers are unable to transact with rates at 5%, then some capital won’t be lent out. In order to maximize profits, the rates will fall until all the available capital is getting the market return. Some profit is better than no profit.
A more healthy business climate should be more than able to absorb the capital.
Since the capital is liquid between different types of investment before it is lent out, the effect you are talking about would be in the tenths of percent, very small.
I think that reduced volume for home-builders and the associated drag on the economy is a greater concern.
I believe we are entering an era of strong price elasticity for mortgage debt.
At rates higher than what buyers can utilize to acquire houses, the demand will drop off severely. At rates where buyers can afford property, the demand will grow stronger as jobs and wages recover.
In the past, due to affordability products, mortgage demand elasticity was weak. Rates didn’t matter much because affordability products and squishy DTI standards allowed buyer demand regardless of the rate.
Now, with affordability products banned, mortgage demand will fall off a cliff if rates rise too much.
If I had to venture a guess, I would say this means will will have low rates for a very long time because rates can only rise with an offset in wages. Based on calculations of necessary wage growth, the housing market will allow about a 1/4 point rise each year before sales volumes and home prices begin to suffer. If the federal reserve wants to raise rates a 1/4 point every six weeks, this will create problems in housing.