Removal of Band-Aids to Reveal Deeper Housing Wounds?
With worries about the deficit intensifying, the government is eager to start withdrawing some of its support programs. The first step could happen as early as next month, when the Federal Reserve has said it will end its trillion-dollar program to buy up mortgage securities. That program has driven mortgage interest rates to lows not…
Be rude the home prices go down only a little more? We are not even half way to the bottom. Home prices have to go back to early 1990’s values to make sense to buyers. Don’t listen to DIBS he keeps inhailing what his neighbors are smoking in BedSty!
morekoolaidsir,
We don’t get it and we won’t get it. ‘it’ being the rusty, non-lubricated I-beam. By next year this time, we will ‘remember what the government did last summer’, pulled out the chair (reGOVery stimulus) from underneath the market.
What tax dollars? Real unemployment (counting all without jobs, not just recent benefit applicants) is fast approaching Great Depression levels (25%!).
It was nuts to think that the government would “watch” the dark days of the 1930’s. But they did.
Drink up! It’s Jonestown!
***Bid half off peak comps***
While some try to argue that the price collapse won’t necessarily be complemented with interest rate increases, thwackamole1 adamantly asserts the opposite by definition. I’m with him.
“fewer dollars chasing an increasing number of prime properties”
Deflation.
I agree with you, Gramps, that the downward price effect of higher rates takes time. But what do you mean by higher rates due to higher inflation? Monetary policy to calm inflation? I don’t think that is relevant right now as we are likely at the onset of a deflationary spiral as you alluded to above.
No, wasder. It says they are certain “whether”.
***Bid half off peak comps***
You renters on this website still don’t get it.
Imagine the worst case scenario in the housing market…
…now imagine your tax dollars bailing out the homeowners….again.
If you think the government is gonna watch prices sell at “half off peak comps” nationally, you’re nuts.
“Actually, it is absolutely CERTAIN”
I know what you meant but this actually says that you are certain that they can take the market props off and have the market stay stable.
Higher interest rates may not lead to corresponding price declines in the short term. Home prices are sticky, especially in affluent areas like Brownstone Brooklyn where sellers generally have high levels of equity in their homes. If the higher interest rates are due to high inflation, then the home prices will not face downward pressure.
You can estimate house price value changes w/r/t interest rates very quickly:
(1-downpayment %) * duration of a 30 year mortgage bond
Example: Duration of a typical 30 year bond is often around 8.
Assuming a 20% down buyer, that gets us a sensitivity of around 6.4% change in home price per percentage change in 10 year treasury rates.
So if rates go up 2% due to higher inflation, housing prices should go down by 12.8% in real terms.
Of more immediate importance: NYS, NYC, and the feds are jacking the marginal tax rate up to 60+% for a significant chunk of the NYC home-buying population. Unless their incomes keep up, there will be fewer dollars chasing an increasing number of prime properties.
for those calling a bottoming in real estate prices, any of you saying the current prices look “cheap” (ie buy now else regret it)?
“so what is better? high interest rate / low house price or low interest rate / high house price? is that a dumb question?”
Whether you’re a cash buyer or putting 20% down and wish to take out a mortgage, high interest rate/low house price is always the preferred state of play. It’s always about the lowest basis. If you’re a cash buyer in a high interest rate environment, and rates move lower, this will increase the price of your house because more buyers can afford the lower interest payments at a higher basis. If you’re taking out a mortgage at a high rate and get in at a lower basis and interest rates go down, you can refinance and reduce your costs. With high prices/low interest rates, the exact opposite is true – as interest rates go up, the prices people afford come down, so the cash buyer finds their investment is worth less. For the guy taking out a mortgage, hopefully he fixed and so his costs remain fixed, but there is no upside to refinancing. Still, if he wants to sell, he can’t because the price of the house has gone down because people can’t afford that price in a higher interest rate environment.