Interest Rates vs. Home Prices

Let’s talk about interest rates for a while. As we have discussed before, when most people buy a home, they tend to determine how much they will spend based on the monthly payment they can afford. Two components make up your monthly payment when you buy a home: loan amount and interest rate.

A common theme in recent real estate reporting is to repeat the scare-tactic that rising interest rates will eliminate any savings that “fence-sitters” stand to gain by waiting to buy until prices fall further. It is definitely true that while falling prices drop your monthly payment, rising interest rates cause them to increase. However, if people’s willingness and ability to pay for a home is based entirely on their monthly payment, does it not stand to reason that rising interest rates will actually cause prices to fall even further?

Let’s approach this by way of example. John and Sally Smith have gone to a mortgage broker to get pre-approved. They find that they can afford a monthly payment of $2,700. At an interest rate of 6%, that will be enough to get them a loan for $450,000, the price of a median-priced house in King County (let’s assume they’re also putting zero down).

The Smith’s shop around for a while, but decide to put off purchasing right now. Interest rates go up from 6% to 7%. Now their $2,700 monthly payment can only get them a $405,000 loan. But wait, if everyone is buying homes based on their monthly payment, who is going to buy the $450,000 home? Is it more likely that home prices will be flat/increasing in this scenario, or that prices will drop as interest rates increase?

It may be instructive to look at a visual representation of what I’m talking about here. The blue line on the chart below shows the home price + interest rate combinations that give a monthly principal + interest payment of $2,700. The purple line shows what the monthly payment would be (right axis) for a fixed home price of $450,000.

Interest Rate vs. Purchase Price w/ Fixed Payment
Click to enlarge

For those who believe that interest rates will climb significantly while home prices stay flat or even increase: I would love for you to explain how anyone will afford homes in that scenario. At even 10% interest, the monthly payment on a $450,000 home shoots up to nearly $4,000.

I’m not saying I don’t think interest rates will go up, I’m saying that rising interest rates will only put even more downward pressure on home prices, in addition to the depreciation that’s already underway. If you have a cohesive argument that demonstrates why things will play out differently, please share.

[Update]
The best argument anyone has brought out so far basically boils down to “prices won’t go down, people will just buy smaller houses.” If that’s the case, won’t sellers of more expensive houses have fewer buyers as a result, forcing them to drop their prices?

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

142 comments:

  1. 1
    Birdie Num Nums says:

    Forgive my financial ignorance, but would not many of the fellow Smiths, who can now afford only a $405,000 home (and not the $450K ones any longer)–with the rising interest rate now at 7%–then all compete for whatever $405K homes there are out there for sale; while the Johnny Joneses of the area, who once were considering a $500K home, now bid on the $450K homes the Smiths no longer can afford; and so forth up and down the food chain?

  2. 2
    The Tim says:

    Consider that each tier you go up, there are fewer and fewer eligible buyers. So let’s say that at today’s prices there are 500 eligible buyers for the $405k home, 400 for the $450k home, and 350 for the $500k home. If everybody just moves down and considers the homes they can now afford, what happens to the sellers of the homes on the higher end?

    If there were 800 people trying to sell $450k homes before, and now there are only 350 potential buyers instead of 400, some of them will have to lower their prices. The further up the “food chain” you go, the more pressure there will be on sellers to drop their prices, which in turn puts pressure on the sellers lower on the food chain.

  3. 3
    vboring says:

    this is a good visualization of why we’re screwed.

    annualized CPI was reported as above 5%. this strongly encourages the Fed to increase rates. but unemployment is also too high and rising, which pushes them to decrease rates.

    and housing is SOL if rates go up, as demonstrated by the Tim’s charts.

    so, sure, keep your money in that CD, paying 3% nominal. aka -2% real.

    or put it in the market and hope that we have a few more days like today before unemployment or bank failures or inflation fears shake things up again.

  4. 4
    NoMoreWork says:

    Birdie Num Nums,
    Wouldn’t that mean everyone is lowering their budget for a house, thus driving home prices down? Your scenario sound reasonable but it all still leads to one thing: depressed home values.

    Example:
    @6%
    20 people shopping for $450k
    10 for $500k
    5 for $600K

    then @7% the brackets would shift lower
    20 people shopping for $405k
    10 for $450k
    5 for $540K
    etc….

    The inventory (supply) would have to adjust to this new buyer pool (demand) as all 20 supposed $450k houses would have less available buyers, and so on and so on… Course this is Seattle so people probably wouldn’t lower prices. The “it’ll sell for asking, I haven’t lowered my price in 10 months, why lower it now” mentality never ceases to amaze me around here.

  5. 5
    Roger says:

    Problem is, Birdie, the number of potential buyers falls off rapidly as prices rise, and the overall pool of buyers becomes smaller, meaning fewer buyers chasing more sellers, which would cause prices to fall anyway.

    If you have 100 potential buyers, there will be a percentage near the top that don’t care about interest, and a percentage at the bottom who can barely squeak into the game. Let’s say 50 of the 100 buyers are qualified to buy your home at 6% interest. If the interest rate goes up, it might be that only 40 of the 100 now qualify.

    But it’s worse than that. The pool of potential buyers in the market has fallen from 100 to 80, perhaps. So not only has the pool of potential buyers for your place fallen, but the overall pool has shrunk, while inventory remains the same.

    The higher the home price (to a certain point, I doubt that sellers of ultra-top-end homes are affected much), the worse the effect. When your pool of potential buyers falls from 10 in 100 to 5 in 100, your house is going to sit for a very long time.

  6. 6
    NoMoreWork says:

    Didn’t mean to Parrot you TIm, your comment wasn’t up while I was writing mine.

    Great minds think alike?…. or is it, no two fools differ?

    Probably the latter

  7. 7
    vboring says:

    Roger touched on an important point.

    different parts of the market are sensitive to financing in different ways. different people will bring different amounts of cash to the table.

    presumably, the lower the tier, the smaller the downpayment, the greater the sensitivity to interest rates.

    so, higher interests rates would be great for someone with piles of cash and the desire to own a house in Renton.

  8. 8
    jon says:

    Not all houses that people buy are sitting around waiting to be purchased. Many are constructed on demand. Those will get built smaller. The existing, larger houses will continue to comp themselves to the larger new houses, and yes they will sell more slowly than before. Builders will stop build large new houses for a while because of the now excess supply at that price point. Any urgent sellers will lower their price. But after a few months, the supply over the 450K houses will gradually come down as some of the the $500K buyers who are in a hurry settle for them. So the median price will fall, but the actual price of each home will not fall as much.

    Also, people will avoid buying and just wait for lower interest rates ahead, while saving up a larger down payment. That will encourage people in an emergency to sell, but others can wait also, perhaps renting it out to the very same buyers who are waiting (although I think people generally rent smaller than they buy).

    All of this is because houses are priced according to the cost of replacement in the long term. Short term fluctuations in interest rates just cause people to adjust their timing.

  9. 9
    jon says:

    One more point. The buyers who pay $400K and wind up with a smaller house than they would have will trade up when interest rates go back down, or just use the extra money for other purposes.

  10. 10
    TheHulk says:

    Let us also not forget that a rising “prime rate” is the tide that lifts all boats. (Although mortgage rates don’t really track with those that well, they track better with 10+ year bond rates). If you saw a percentage point increase in your mortgage from 6 to 7, you are pretty much assured that the rate has climbed on all other kinds of loans as well (think car loans, credit cards etc.).

    In todays market where we have barely seen any wage appreciation since Y2K, this would put even more pressure on the person who can barely afford a 2500 per month mortgage. Couple that with increasing energy costs (just look at the so called non-core inflation numbers published today) and you can see very well how this can run downhill pretty fast.

    Tim’s charts don’t reflect this reality where even though your mortgage payment stays the same, your net debt to income ratio for every month keeps creeping up.

  11. 11
    frede says:

    right. and the ramen eaters want you to buy before that happens, because the interest hikes only benefit the banks, not the re’s.

    they know that when the rates go up, buyers will be looking to spend less, so they’ll have to fly prices lower to get buyers.

    so get those suckers to buy now.

    it hurts sellers too, which sucks for someone really trying to move out of their home and not just dumping investments. but most houses are still overvalued.

  12. 12
    Alex says:

    Birdie Num Num:
    By definition, there are not enough Joneses to take the place of all the Smiths.

    Reasoning: the $450k is a very special number: it is the *median* price of all homes currently sold. Likewise the “Smiths” are very special people: they are average people who want to live in an average house.

  13. 13
    Amy says:

    So let’s take an example:

    Interest rates rose from May 1 (5.75%) to 6.375% to June 16.

    During that time, a house sold for 98 percent of the original listing price… so for a 450k home they could purchase it for $441k.

    Your monthly payment would be $100 cheaper at 5.75 and 450k than it is at 441k and 6.375%.

    Interest rates are tied closer to the 10 year treasury… which is continuing to rise… Watch it go up, up and up.

    People need homes. People will always buy homes. If you need a home, there is no reason to SIT on the sidelines… you may end up losing more money.

    Of course, if you are speculating, or can handle the renters next door who don’t care about their home, your home, or your privacy, then stay where you are:)

  14. 14
    Sniglet says:

    Rising rates might make it harder for people to buy homes (and hurt the market), but the flip-side isn’t exactly true. There is no reason that the downturn can’t get worse, even with low rates.

    The decline so far has occured during a period of low mortgage rates, which just goes to prove that rates themselves don’t determine the direction of the market.

    What good are low rates if fewer people can qualify for loans and larger down-payments are required (e.g. it is getting tough to find mortgage insurance since the insurance firms are near bankruptcy, making it difficult to buy without a large down-payment)? Job losses due to an economic contraction can also put a damper on real-estate.

    All those real-estate bulls calling for low rates just might get their wish, and still find no succor. Low mortgage rates, in and of themselves, will not rejuvenate real-estate.

  15. 15
    TJ_98370 says:

    Off topic, but worth attending to IMO. Mr. Bernanke covers a lot of territory in his remarks……

    Bernanke Remarks On Housing Market and Credit Crunch

    Video and transcript

  16. 16
    Roger says:

    Also to be considered, to build on TheHulk’s point: People in the recent past has stretched to buy all the house that they could possibly afford, artificially inflating the pool of buyers at higher price points.

    That’s an easy-enough rationalization to make when the other expenses in your life seem like constants. Now, with rapidly increasing fuel and food prices, I bet folks are a lot less willing to balance on that knife edge of liquidity just to get granite and a bonus room they’ll never do anything with.

  17. 17
    Roger says:

    Amy, your post lacks coherence. How, in a deflating housing market, can you lose money by buying now? That makes no sense.

    Please post some sort of data point that renters are concerned less with your privacy than owners. That has to be one of the most bizarre contentions I’ve seen yet.

  18. 18
    Bits_of_Real_Panther says:

    “Interest rates are tied closer to the 10 year treasury… which is continuing to rise… Watch it go up, up and up.” The yield on the 10 year T is likely to languish in its current range (3.5-5) for a good long while IMO. Place your bets

  19. 19
    Amy says:

    Roger,

    I am not sure what part you don’t get. I laid out the way you would lose money. You would be paying $100 dollars more for the same house that depreciated in the last six months with today’s interest rates than if you would have bitten the bullet and purchased that exact same home with lower interest rates. What part of that do you not get?

    Have you ever visited a rental home versus a home that has been lived in by owners? I have, and one of the reasons I would never purchase a conversion project, nor would I purchase a home that has been rented out for more than a few years. Renters have no phychological attachment to the home. They pay a rent, which psychologically means they can do whatever they want in the home without fear of retort (except for a measily security deposit). An owner must maintain the home in the fear that if things turn for the worse, they would have to sell.

    There are exceptions, but I doubt there is any formal research that vindicate my points. I know I have been in hundred’s of homes, and in my brief, albeit unsophisticated research, I find homes that have been lived in are far better maintained and cared for. I also find that generally speaking, the cream of our society are not renting homes, so therefore you receive a plethora of rather not-well-off people living in a rental home. I mean no disrespect, but if you aren’t owning, it’s usually because you can’t afford to own or don’t have your act together enough to save enough money, be responsible enough to purchase a home. With the cost of real estate in Seattle, I have no doubt that it is more the former than the latter. There are other’s as well… but I won’t go into those.

  20. 20
    Brad says:

    Nice troll, Amy.

  21. 21
    vboring says:

    i agree that interest rates are likely to increase and that this will encourage house prices to fall more rapidly than they would with stable low rates.

    i’m not convinced that prices will fall rapidly enough to make up for the increase in monthly payments due to increasing interest rates in the short term.

    i’m also not convinced that rates as low as these will return. they are low because the system went crazy. the system is being taken to the woodshed. it may be a while before it goes so crazy again. 10% may be the new 6%, especially if the Fed decides to actually fight inflation or if one of the GSEs goes under.

    it could be decades before we see 6% RE loans again.

  22. 22
    masaba says:

    Amy, just go through a smattering of old homes that people have purchased (not rented) in Seattle if you want to see the true butcher jobs on a house. Many of the do-it-yourself fixer upper types in this city who thought that they could milk some sweet equity out of a home by finishing the basement are equivalent to if not worse than the damage done by renters.

  23. 23
    Lake Hills Landlord says:

    Amy,

    I can provide an equally useless counterpoint to your contention that renters are somehow less than owners. My tenants make several times what I make annually and decorate and take care of my rental better than I did when I lived there. We could trade anecdotes all day, but it doesn’t really prove anything either way.

    As far as the $100 per month difference goes, I suspect the $9k drop doesn’t reflect the increase in interest rates yet. I don’t have data, but I would guess that price drops will significantly lag interest rate increases. Does anyone have historical data that backs this idea up?

  24. 24
    Jonny says:

    vboring: Doesn’t the chart convince you? if you are unconvinced that on prices will fall approximately on the curve shown, then you must believe that people are going to be willing and able to pay larger monthly payments. in this environment, with wage stagnation and increasing commodity and energy prices, how exactly do you see that happening?

  25. 25
    Silver9 says:

    Great chart and a great topic for discussion.

    Looking at this situation in reverse is also a good argument for how Greenspan/Bush screwed us by lowering rates so low for so long. the dotcom crash was bad but this is going to be much worse in the long run.

    By dropping rates so low, people could afford more house and the house sellers responded by raising prices so that we got where we are today: run-down, poorly built homes that are selling for $500k and more. Maybe I am just old and remember $100k homes but a half-million bucks is a LOT of money and who wants to be paying for anything for 30 or 40 years?

    Big changes in interest rates have a huge impact on our lives. Lower rates felt good for a while but unwinding this mess is a major hangover. Nor is it even clear how our government is going to respond to the historic problems caused by flooding the money supply.

    As someone who is tired of renting, this whole situation is both personal and painful and the future is very uncertain. Bah humbug :(

  26. 26
    Lake Hills Renter says:

    Funny, but the house and yard I’m renting is as well kept (if not better) than most of my owner neighbors, I have as much privacy as they do, and my rent payments are half of their mortgage payments. And since the neighborhood is starting to decline (lots of new owners lately in the area that just don’t seem to care about the neighborhood) I can pick up and move if it gets bad enough at much less expense. But then since I’m renting I’m apparently be not-well-off, don’t have my act together, and aren’t responsible. Otherwise I’d be stuck in my house too.

    Aren’t stereptypes fun? Amy did renters, so now who’s going to do owners?

  27. 27
    Silver9 says:

    To address Amy’s points about the “creme” of society and deadbeat renters.

    Owning a house is a certain hurdle so I would imagine that the least capable of our society are mostly renters.

    However, in my experience it is the landlords not the renters who have no personal attachment to the homes. For them it is an investment and any money they spend on the house is money out of their pockets.

    In the property we are currently renting, I have told our landlord about a huge list of things that are broken or worn out; I have even offered to fix them but he refuses to spend money on anything that he is not legally required to do. After all, why should he spend money on “my” house?

    Renting makes total financial sense right now but it is very hard to find a landlord that is a pleasure to rent from.

  28. 28
    vboring says:

    Jonny:

    1) some people bring cash to the table. big wads of it. they will care less about interest rates

    2) in the past when interest rates get high, people get creative with RE financing. there was a time when owner financing wasn’t uncommon in the used house market. sort of like taking over someone else’s car loan.

    3) the gov’t doesn’t want housing to be unaffordable. they may engage in all sorts of silly programs and subsidies.

    4) reality in general: CalculatedRisk did an analysis of the strength of correlation between house prices and interest rates. i gotta run catch a bus. maybe someone else can go find a link for it. if i remember, they are correlated, but certainly not 100%.

  29. 29
    cm says:

    If rates go up and the buyer could afford $2700 at 6% on a 30 year fixed rate mortgage and prices do not drop enough to offset the new 7% rate, they will look at other financing options (ARMS and Interest Only loans) before buying smaller house. This will prolong the need for sellers to lower the price.

  30. 30
    NotAnOwner says:

    I can’t believe no one has mentioned inflation yet in this discussion… well, you could think of the shift towards smaller homes as a form of inflation.

    Anyway, here goes: Interest rates are a measure of predicted inflation. Basically, they are the hedge the entity giving you 450,000 now is using to protect their investment, i.e. they want the 450k they loaned you to still be worth at least 450k when they get paid back.

    Now, if inflation is also pumping up wages (which happened the last couple times we had major inflation in this country) then 450k today isn’t 450k tomorrow, it is a lot more. So, in this case, increasing interest rates don’t affect affordability all that much because the Smiths will be pulling in more money.

    On the other hand, if there isn’t wage inflation (which is what we are experiencing now) rising interest rates should indeed curb demand. The purchasing power of the Smiths is being corroded over time, making that 450k home more and more of a stretch.

    Basically, rising interest rates can impact demand, but don’t have to. Given that we aren’t likely to experience crazy wage inflation any time soon, I would certainly expect rising interest rates to decrease demand (and thereby leading to reduced prices).

  31. 31
    Joel says:

    Allow me to preempt RAL and magnolia by saying:

    lol you guys crack me up. itll be even harder for you renters with no money to buy when interest rates go up lol. your to stupid to understand that just because you can’t afford it doesn’t mean everybody cant afford it. theres always someone richer than you lol.

  32. 32
    mike2 says:

    “prices won’t go down, people will just buy smaller houses.”

    Or they’ll buy foreclosures. Check out southern california. 40% of homes sold are foreclosures, and payments are down 35% YOY.

    Interest rates doen’t even appear to be in this equation.

  33. 33
    been there says:

    If interest rates shoot up, that means inflation is up. Wages will go up sooner than later. I would love to pay my morthgage up with few monthly salaries. That’s what my parents did in the early 90s in Eastern Europe. The wage increase might not be as extreme, but with inflation wages will go up.

  34. 34
    Sniglet says:

    Is there any correlation between interest rates and house price appreciation/depreciation? It would be very interesting to chart housing prices against mortgage rates. I suspect that there is no direct correlation (i.e. that there are times when rates are falling and times when prices are falling as rates are increasing) but it would be great to confirm that.

  35. 35
    NoMoreWork says:

    Interest rates might rise but it will take some time to get to 10%. During this time, housing prices will fall and renters will squirrel away as much money as they can (taking advantage of rising savings rates). They can do this because >50% of their income isn’t going to housing payments.

    So when the time comes, renters will have a large $um as a downpayment that will go a lot farther when applied to the depressed housing prices, thus lowering monthly payments. The current interest rate “savings” on the monthly payments, because of a couple % points, will be negligible compared to the equity they will build.

  36. 36
    The Tim says:

    Sniglet, I agree, there likely is not a direct correlation, and I wasn’t trying to say that there would be with that chart. I was just trying to show rising rates will put downward pressure on home prices. In the past things like suicide loans and insane financing have come in to play to relieve that pressure, though I doubt such nonsense will work again in the near future should rates indeed rise.

  37. 37
    Joel says:

    they will look at other financing options (ARMS and Interest Only loans) before buying smaller house.

    This is what they have been doing to offset ridiculously high prices in the past few years. But as the mortgage meltdown has shown this doesn’t work in the long run at all. Banks are eliminating the options that make mortgages more “affordable” or they’re pricing the extra risk into the rate and fees making them unaffordable.

  38. 38
    NoMoreWork says:

    Sniglet,
    I’m not sure there’s ever been a time in America where housing values have impacted the overall health of the nation like present day.

    The rates were lowered as a reaction to the melt down in the credit market and collapsing bubbles around the nation. As a result of that, the rates will rise as we try to curb inflation. I believe an impact of this will be further declining (in Seattle and some other markets) or flatlining (elsewhere) home values.

  39. 39
    mike2 says:

    Have you ever visited a rental home versus a home that has been lived in by owners? I have, and one of the reasons I would never purchase a conversion project, nor would I purchase a home that has been rented out for more than a few years. Renters have no phychological attachment to the home. They pay a rent, which psychologically means they can do whatever they want in the home without fear of retort

    Interesting. I’ve been in each of the recent resales on my street and the place I rent it nicer. Granted, the owner did a full remodel right before we moved in, but we’d have to trash the place to bring it down to the standards of the other homes – not to mention rip out all of the granite, wood floors, carpet and new appliances.

    In case you’re wondering, the last 4 nearby sales were all owner occupied before hand. They just happened to be slobs with poor taste that bought when the neighborhood was cheaper.

  40. 40
    Bits_of_Real_Panther says:

    I can’t find many good articles relating rates and prices. Changes in median home size also confounds the issue. Here’s an interesting read from two years ago

    http://www.uli.org/AM/Template.cfm?Section=Search&template=/CM/HTMLDisplay.cfm&ContentID=65390

  41. 41
    Bella says:

    Um, as someone who started watching the market at the beginning of this year for a reason that I simply can’t remember, I really have to say that prices HAVE dropped.
    A year ago, I was almost starting to believe that prices were going to stay high forever and that I would never be able to buy a house. At the beginning of this year, I started to notice some more reasonable prices for houses in my area (Ballard) that I would consider buying. A couple of months ago, I spotted the first house that made me think “If I was ready to buy, I’d make an offer”. This was after watching houses in what I considered a reasonable price range (up to about $375k) sit for months and then finally drop.
    We started going out to look at houses, and honestly, most of them SUCK. But at least houses existed in a somewhat more affordable range, where they didn’t before.
    About a month and a half ago, we found a house that we liked, even though it was still too small. It didn’t work out, and now, we’re pretty happy about that because we’ve found another house that is nearly twice as big, for the same price.

    No, I’m not watching the ENTIRE market, I am only watching it for myself – a certain (low by most standards today) price range, and a certain neighborhood, but what I’ve experienced is a real life experience and it has to mean something.

  42. 42
    Bits_of_Real_Panther says:

    Shiller wrote a paper on the topic of rates vs. prices last year

    http://cowles.econ.yale.edu/P/cd/d16a/d1632.pdf

  43. 43
    Bella says:

    And now that I’ve read all the comments and not just the update to the original post…

    It’s true what was said up there somewhere about some of the DIY remodels owners have done to their homes being worse than how renters trash them. The houses that I mentioned that SUCK? Those are the ones I’m talking about.
    We have seen a number of what our agent called “add-a-shacks” which made me think of “Silence of the Lambs”. We saw one house in which the owners had decided to “add a basement”, by which I mean went down there with a shovel and excavated a gaping pit under the house over 20 years. That house was ready to cave in at any time.
    Even the last house that I rented before the one I hope to move from soon, looked really nice on the surface, but after having lived there for a while, I realized that the owners had done the work themselves, and while they didn’t do anything utterly tragic, it certainly wasn’t a high quality remodel that would make their house worth hundreds of thousands more than what they ended up selling it for.

  44. 44

    “prices won’t go down, people will just buy smaller houses.”

    If that’s true, neighborhoods like Skyway, with their post World War 2 crackerboxes, should be highly sought after.

  45. 45
    Alex says:

    Wait a minute!

    The King Count Median sale price rose from May to June. And interest also rose in the same period.

    Doesn’t that mean that the “Smiths” in our area decided to swallow the extra $100 a month, and still buy a house that’s worth $450k?

  46. 46
    gill says:

    tim —

    i think there’s a hole in your arguement in using the ‘zero down’ contingent. fact is that while that happened frequently in the recent past most people plan on having at least 10% to 20% saved up for a down payment.

  47. 47
    Garth says:

    I think gas prices with their six foot signs on every corner and food prices with a trip every week are having a far greater impact on people’s behavior than I have ever seen with interest rates.

    Even in the scenario that Tim laid out above , the person buying with 100% financing is not getting 6% for the whole amount, they will either have to buy mortgage insurance (.5 – .75%) or 20-25% of the sale price would be in a heloc with a couple point higher rate. 100% is not really an option anymore either, a low down payment now is 3-5%. It has been quite a while since 20% was a normal down payment for buyers who were not selling another home.

  48. 48
    Joel says:

    100% is not really an option anymore either, a low down payment now is 3-5%.

    True. 3% is probably accurate for the current market given how big of a role FHA has taken on lately.

  49. 49
    economist says:

    Now, if inflation is also pumping up wages (which happened the last couple times we had major inflation in this country)

    Back in those days the US had things called “unions” and “manufacturing”, and the Chinese were running around waving Little Red Books rather than making all the stuff the US doesn’t make anymore.

    Wages are not going to keep up with inflation, and stagnant wages with rising consumer prices means lower house prices.

  50. 50
    Ron says:

    Hello.. just checking to see if this works first before I put in my comment..

  51. 51
    Ron says:

    Here is my Comment:

    I dont post here very often- at least a year or longer?

    anyways what I dont like about this Website is the Lack of depth… im a implod-o-meter and Economist fan..

    Anyways I think you guys are all forgetting the real Story with Higher interest Rates its not Only going to Place more pressure on the Prices Which will go lower… The Real Story is the NEGITIVE Equity Positions that Places on everyone that Signed A Rental Ageement with there Banker.. See a great deal of people Think there Owners and in the process of loosing Whats Imaginary Equity, they will feel like renters- if not already there.

    Whats caused the Deflation to get much Worse in Places like California IS JUST THAT~!! … NEGITIVE EQUITY..

    I Have had several people approach me about this same thing.. WORRIED ABOUT THERE “NEGITIVE POSITIONS IN REAL ESTATE”.

    The Truth is Many People are Feeling like renters in Mortgages that steal all there Potential Savings…. now to top it off the Utilities and Gasoline is Just Icing on the Cake.

  52. 52
    TJ_98370 says:

    Interesting thread. Two comments:

    1) I can find no article or study that shows a direct correlation between mortgage interest rates and real estate market values. If someone else can, please share. Inquiring minds want to know.

    2) Considering the fact that a solid, agreed upon definition of “inflation” does not seem to exist, assuming future effects of “inflation” appear presumptuous. Can we expect overall wage increases in the near future? Are the recent increases of prices of oil and food due to increased global demand, currency exchange rates, speculation, increased money supply, or all / none of the above? Also, if we are experiencing inflation, why are real estate values decreasing?
    .
    .

  53. 53
    Ron says:

    Here is another Point:

    See I much rather Pay a Higher Interest Rate… Especially IF THE PRICE IS LOWER….

    Why? its Called the Mortgage INTEREST DEDUCTION..

    IF everything is equal in pricing- that is Ending Price, hard to explain in one couple of lines, maybe? – maybe one of you here could get to the point better than I can, I spend 30+ hours a week studying everything from taxes to stock, currencies, real estate- anything dealing with money, Im one of the guys that been shorting the likes of Cfc, C, Wm etc.

    “I Get roughly a 20% mortgage interest deduction on my taxes- mortgage interest… so prices do down with higher interest rates those interest rates create greater tax savings in the end.

    Interest rate goes up Price Goes Down… at least the Interest is a Deductable..

    Thing is there is many ways you dont have to deal with the bank- Wrap arround Mortgage, Lease Puchase agreement etc.
    Put it this way there is many ways to control property without the bank standing in the way… I wont go any further here on this web-site.

  54. 54
    Ron says:

    The End point is Dont let Interest Rates Create Fear…

    There is always and upside created out of every Downside, just need to be creative in your approach and way at looking at it.

    When I said you didnt need to Go to the Bank, You really dont.. ive Controlled a Total of 8 different Houses without the Bank ever getting Involved.

    The thing is the True Real estate professional investors NEVER SAID INVEST IN NEGITIVE CASH FLOW PROPERTIES.. Meaning the True value is what the property can Rent for… that is Real Estates P/E= Price to Earnings… the Problem is that whats happened is much like what happened in the Dot Com crash- companies with Negitive Cash Flow. People gotten involved with Negitive Cash flow properties that they thought were investments.

  55. 55
    Ron says:

    TJ_98370 –

    really its comes down to affordability in the end.. … then again Now It comes down to also getting someone to actually let you get that loan.

    TJ_98370 – inflation doesnt mean everything goes up in Value.. put it this way at the same time everything you purchase from Day to Day to live goes up..

    At the same time given the Circumstances in the Credit Markets everything large you need to Buy by Borrowing goes down in Value… lack of credit creates Deflation in everything purchased with credit.

  56. 56
    Jonny says:

    Ron,
    Are you sittin’ at home smokin’ a bowl, or somthin’?

  57. 57
    Ron says:

    Hopefully that clears your Questions on Inflation which is nearly everthing you purchase from day to day….

    Deflation with large ticket items you pay with Credit..

    Im out of here be back in another Year or So…. dont have the time to post here- I like to check back on this site from time to time to get a Pulse.

  58. 58
    Ron says:

    Figures I would get a comment like that: Are you sittin’ at home smokin’ a bowl, or somthin’?

    My friends tell me Im over most Peoples heads when it comes to Investing. Wish I could explain it better. Its really a art to explain and it takes so much time and depth to really go into detail, A lot of times I Assume someone will understand some of the Limbo.. or terms I would assume your scratching your head and saying what your talking about? hang out with me about 100 hours and you will start to understand. Put it this way I had a renter that took 2 years to understand me.. he questioned me for about a year now “He just listens..

    its only because this is what I do Invest, because its what I love to do.. sorry if you think Im Smoking a Bowl…hahahaha.. actually might not be a bad idea.

    take care, Ron..

  59. 59
    TJ_98370 says:

    Ron,

    Thanx for the response. My point about the term “inflation” as it is used in the MSM is that it is almost meaningless. I read the newspaper headlines “Inflation Reaches New Heights” (AP article, sorry can’t find a link) and the article references gas and food “wholesale” costs increasing by 9.2 percent in the last 12 months. So, is that a “price adjustment” for that segment of the overall economy or is it “inflation”.

    Maybe I’m just being too obsessive about terms.
    .

  60. 60
    mikal says:

    Interest rate rising will greatly affect the higher priced homes. The houses priced up to $500,000 will not be as much as people will have to move down on what they can afford. It will come down to who can get a loan. The bubble is being deflated by that more than anything.

  61. 61
    rose-colored-coolaid says:

    I missed the bus here, but there seems to have been a bit of an argument about how much of a leading/trailing indicator interest rates are.

    One of the first things to do when buying is go find a lender who you can get a rate quote from. My understanding is that if you purchase in a reasonable time (say 90 days), you get the rate you had quoted to you, even if rates in general have increased since then.

    If so, price declines would trail rate increases by no less than 3 months.

  62. 62
    Ron says:

    I would say were living in a World of Inflation and Deflation…

    Myself I find myself reading the same information over and over again- I’ve probably have read the same article already, then again I read the same information over and over again like most people.

    just because nearly everything is going up.. doesnt mean everything is going up- supply and demand always plays a function in the markets- if they built to many houses and put up to many apartment buildings then the prices they can charge will reflect down… only thing that can be done is fix the credit markets and build less houses and maybe less apartments?- im also looking at the Possibility that all that inventory of Apartments to condos are soon going to find there place back in the Rental market soon.

    Beleive me there is a Lot of Inventory coming back in the rental Pool in the Next 12 months… Riverstone, Champaine etc. those will be serving as rental apartments in near future, “Probably…

  63. 63
    Ron says:

    here is Excellent person that has Video Feeds and is professional in the mortgage industry- he is easy to understand and very informative.

    Mrmortgage

    http://mrmortgage.typepad.com./

  64. 64
    TJ_98370 says:

    Mikal said: Interest rate rising will greatly affect the higher priced homes….
    .
    I would agree except for those that can pay cash. I actually know some people who retired, sold their home in LA a year and a half ago and bought top-priced lake-front property in Idaho (Lake Ponderay) for half of what they sold their LA home for. These type people couldn’t care less about mortgage rates. There are alot fewer California equity vultures these days, but I submit there are still people who can pay cash for real eatate and those type buyers are over-represented in the upper segments of the real estate market, wherever that may be.
    .

  65. 65
    Scotsman says:

    Keep reading, Ron. You sound confused to me. Try taking on one concept at a time, and work into the inter-relationships…

    The home I rent has dropped $80,000, or $12,000/month, since the first of this year. That trumps any consideration of interest rates, tax deductions, or budget constraints. And while the rate of decline has slowed a bit most recently, I still think we’re only getting started.

    But hey, oil has dropped to a very reasonable $134/B, GM’s stock has shot back up, and the government has assured us (again) that everything is OK. This must be the bottom! /sarc off

  66. 66
    economist says:

    Also, if we are experiencing inflation, why are real estate values decreasing?

    Because asset prices are often negatively correlated to consumer prices. It’s happened before – there was a severe bear market in stocks in the 70’s, and house prices rose only because wages were outpacing consumer prices.

    It’s meaningless to talk as though “inflation” means a single metric. Monetary inflation, consumer price inflation, asset inflation, and wage inflation, are all different things and can and do move in different directions, although they do interact with each other in complex ways.

    The person on the street uses “inflation” to talk about consumer price inflation, although sometimes he throws in a bit of asset (house price) inflation as well. CPI measures (or is supposed to measure) consumer price inflation only, so it should not and does not include asset prices such as house prices.

    The difference between assets and consumables, BTW, is that nobody ever has to buy assets. Assets are investments that provide a future return.

  67. 67
    jon says:

    “If that’s the case, won’t sellers of more expensive houses have fewer buyers as a result, forcing them to drop their prices?”

    There are a lot of unspecified conditions in this hypothetical situation, but higher interest rates are usually caused by high inflation. High end home-buyers are the owners of assets that produce income that goes up with inflation. They will be looking for inflation and tax hedges, and real-estate is an excellent candidate. So I don’t think the assumption that there will be fewer buyers at the top is correct. They will be willing to pay high prices in order to get protection in case inflation gets worse.

  68. 68
    Ron says:

    Keep reading, Ron. You sound confused to me.- Confused about what?

    I thought the Point of the Argument here was Interest Rates going up and how it would negitively affect the person that Didnt jump into getting on the Housing Train today..

    I understand very Welly on Houseing pricing going down as we speak without that happening.. there are so many factors at this moment that only speak to much happening for a downside effect- in fact I Really cant, even if I tryed to come up with any Upsides to jumping into the Housing mix… What Upside? please anyone lets here the upside “Financially speaking?— besides the renter throwing there money away– im not renting, however Im in the process of trying to become a Renter…. hell “I want to rent right now…

    The End- nothing Definitly Follows, Not Even if you try……… see you next year, after I become a renter…

  69. 69
    Ron says:

    Ive just finished 2 bottles of wine.. sorry about my spelling going Downhill in last couple of Posts.. Out of Here…

  70. 70
    TJ_98370 says:

    economist said:

    …It’s meaningless to talk as though “inflation” means a single metric….

    Well said. I’ve come to the same comclusion, yet the MSM often uses the term “inflation” as a single metric / overall concept. I think generalizing the term is misleading and a disservice for mainstream readers with no background in economics.
    .

  71. 71
    Scotsman says:

    It will take more than two bottles of wine to dull the pain of equity losses already on the books, and those yet to come. A friend has already lost the equivalent of everything he’ll make in the next three years, and has yet to bite the bullet and bail. By recognizing that renting might be a wise move in this particular market you’re well ahead of the masses who have yet to see the reality of what’s coming.

  72. 72
    TJ_98370 says:

    Ron, my lady suggested I post this for you. Sweet dreams!!!
    .
    Bottle of wine, fruit of the vine, when you gonna let me get sober. Let me alone. Let me go home. Let me back and start over.

    Well, I’ve rambled around this dirty old town singing for nickels and dimes.
    Times getting’ rough. I can’t get enough to buy me a little bottle of wine.

    [Chorus]

    Well, little hotel, older than hell, cold as the dark in the mine.
    Light so dim, I had to grin, I got me a little bottle of wine.

    [Chorus]

    Well, the preacher will preach and the teacher will teach. The miner will dig in the mine.
    I ride the rods, trusting in God, huggin’ my little bottle of wine.

    [Chorus]

    Well, pain in my head, bugs in my bed, pants so old that they shine.
    Out on the street, I tell the people I meet to buy me a little bottle of wine.

    [Chorus]

    Bottle of wine, fruit of the vine, when you gonna let me get sober.

  73. 73
    TJ_98370 says:

    With that last post, I’m thinking I’ve done enough damage to Tim’s blog for one day. All done in fun, okay!!!!

  74. 74
    mikal says:

    scotsman, why bail. The fees don’t make it worth it. Same areas haven’t lost any value. Even those that have haven’t lost enough to scare a person to sell unless they bought after 2005. And then they are screwed anyway. I’m dying in this house so I don’t care about any paper losses. Then again, it is going to be alot of drops for me to be underwater in any of my houses. Any gains I have have also been on paper. Your another one that must be a blast at a party. THANK GOD FOOTBALL IS ABOUT TO START.

  75. 75
    On Topic This Time says:

    Personally, I would rather buy at high interest and low prices than low interest and high prices.

    As a potential first-time-buyer, I think about it this way:

    1) If I buy when prices are low because of high interest, then if/when I need to move, the house has more value and I don’t take a loss. I’m not trapped.

    2) If most people buy on what they can afford “monthly”, I win because they don’t spread their tax savings evenly throughout the year into the home (We can afford that big screen TV now!), which pushes down costs for financially prudent people who already bought under their limits

    3) If I buy when interest is high and then rates drop, I can refinance into better payments. You can negotiate a new loan, you can’t negotiate a new purchase price. I might take a hit in the semi-short run, but I can fix it within a few years. It’s like an ARM, only good.

    I can (barely) afford to buy in my neighborhood, but I think it’s foolish to do so right now unless we begin to see severe inflation (capable of effectively wiping out any debts) and the fed takes no action to suppress it.

    The question at this point is “Which bullet will the fed bite?”… They can’t ignore inflation for much longer.

  76. 76
    mikal says:

    Agreed, but what many of you aren’t understanding is that there are ALOT of people that can afford houses up to $500,000 even if interest rates rise. It won’t help any of you. It is getting a loan that will help you or hurt you. It is harder to get a loan. Even if you have good credit.

  77. 77
    Herman says:

    I think Tim’s scenario assumes a high degree of elasticity.

    Elasticity = how easy it is for the market to shift to the “theoretically perfect” supply/demand and price point.

    In practice I think that there are a number of factors that impact price elasticity for homes. For example, your seller who is “forced” to drop his price to $405,000 may not be able to do so because it creates a short sale, or he may mentally feel like he doesn’t want to sell that low. The home is therefore never listed for sale, which contracts supply.

    Of course, in an environment where job losses are happening, people become FORCED to sell. That can be a trigger for elasticity.

    Given the inelasticity, it just takes a while for the higher interest rates to have their effect. And so the price drops you want will lag behind the rising interest rates.

    That’s my guess anyway. To summarize:

    “In a period of RISING interest rates, homes will be less affordable – more costly to obtain – than a period after interest rates have been STABLE for some time or are FALLING.”

  78. 78
    economist says:

    High end home-buyers are the owners of assets that produce income that goes up with inflation

    Really now? How’s the stock market doing?

    As I said, consumer price inflation is often accompanied by asset price deflation.

  79. 79
    Buceri says:

    – Median income in the US went down 1% YOY for June 08.

    The stat got lost in the shuffle of news during the past 48 hrs (Bernanke’s “the economy faces numerous difficulties”, Polston’s “give a blank check; I won’t use it; but the blank check will give people confidence”; and our president’s: “your money is safe….if you have less than $100K. HAHA”.)

    The Hulk @10. Agree…..People are getting hit from everywhere; it’s not a case of just interest rates vs. home prices. Throw in the equation the increase of food, gas, and most importantly: “will I have a job next week?”

    Joel – thank you for representing RAL and Magnolia. The discussion was getting too coherent.

  80. 80
    NotaBull says:

    RCC said: “My understanding is that if you purchase in a reasonable time (say 90 days), you get the rate you had quoted to you, even if rates in general have increased since then.”

    The quoted rate will just be the rate at the time, or perhaps a little higher if the lender wants to ensure that they qualify you for an amount of money with a little room for rates to rise in the near future.

    You only get to keep a rate if you “lock” with the lender, which is often a 30 day lock. You can pay for longer periods, but it can cost thousands of dollars and/or an increase in the rate you pay. So you’re almost always better off waiting to figure out the property you’ll buy, then working with your lender to lock the loan some time in the next few weeks prior to closing. There’s usually a window of a few weeks during escrow that you can watch the rates and make the decision of when to lock.

  81. 81
    jcricket says:

    There are a lot of unspecified conditions in this hypothetical situation

    Isn’t that pretty much the problem with all the armchair analysis going on here? Everyone acts as if their “assumptions” are the 100% dead-on right “facts” in a massively complex national and global economy – which always makes me laugh. First off, they’re often incorrect from a simple study of historical precedents (as economist and others have pointed out). Secondly, as Malthus and other doomsayers of the past have learned, you are most likely failing to account for “paradigm shifts” will occur in the future rendering your assumptions/constraints incorrect. None of this means RE will go up forever, or a particular housing market is “balanced” or that it’s a good time to invest all your money in eBay – just that doomsday predictions that have 100% certainty tacked to them are almost always wrong in any long-term analysis.

    Don’t get me wrong, when Tim sticks to the basics, I appreciate the insight he is providing. Someone needs to counter the emotion-based, biased cheerleading that goes on in the RE-driven press. However, once I start reading about 1:1 drops in prices based on rising interest rates, I know we’ve left the realm of reality and entered speculation-ville once again.

    Fundamentally, the perma-bears are no better than the RE cheerleaders in that they are letting subjective validation and confirmation bias cloud their judgment.

    Historically, when judging the accuracy of people who continually predict the downfall of the American economy (said perma-bears), most have been trounced by the bulls. The perma-bears are often right for a year or three, but then stick to the same attitude while the market recovers, and give back all the gains they’ve made.

    Reminds me an old joke I heard when I was a physics major in college: “The difference between theory and practice, is that in theory there is no difference”

  82. 82
    rafael says:

    This is simple economics where interest reates, income, inflation, new credit standards all play a role in house valuation. It is astonishing how many real estate agents don’t have a grasp on reality and basic economics.

  83. 83
    Civil Servant says:

    Mikal @ 75: You say “what many of you aren’t understanding is that there are ALOT of people that can afford houses up to $500,000 even if interest rates rise.” Totally agree, and I suspect that many who post here are in that number. But I think that a dawning distrust in real-estate as a foolproof investment and general economic uncertainty especially w/r/t inflation is going to change significantly would-be buyers’ attitudes and behaviors. If those who “can” afford up to $500K make decisions that are strictly consistent with being able to afford at $400K, they effectively move themselves into the latter category. Factors like this play into the market as well.

  84. 84
    Alex says:

    I would still like to see someone address this comment. Facts from May to June in King county contradict the article’s theory.

    ——————————————–
    The King Count Median sale price rose from May to June. And interest also rose in the same period.

    Doesn’t that mean that the “Smiths” in our area decided to swallow the extra $100 a month, and still buy a house that’s worth $450k
    ——————————————-

  85. 85
    jon says:

    “Really now? How’s the stock market doing? ”

    When inflation sets in stock prices go down, and yet the income will go up with inflation. The reason that the rising income does not cause a rise in the stock price is because the discount rate applied to the future income is very high also when there is inflation.

  86. 86
    Joel says:

    there are ALOT of people that can afford houses up to $500,000 even if interest rates rise. It won’t help any of you.

    As The Tim said in comment #2: There may be a lot but if it is fewer than if rates didn’t rise then it will cause downward pressure. Are you going to argue that no matter how much the monthly payment is there will always be the same amount of people that can afford it?

  87. 87
    mark says:

    “there are ALOT of people that can afford houses up to $500,000 even if interest rates rise. It won’t help any of you.”

    Those were the people that could afford houses in the 700k – 800k range at a lower rate. It’s called a falling standard of living.

  88. 88
    mark says:

    How about move up buyers. Lots of talk about people buying a house and staying forever. That isn’t the usual scenario. Most people buy and sell several times in their lives.

    Take someone who was lucky enough to buy a house for 250k at 6%. They’ve been in the home several years and would like to move up. Lets assume that their current house is now worth 500k. Lets also assume that interest rates are now 10%.

    Original mortgage:
    250K @ 6% = $1498 per month payment. P&I only.

    The house is sold and they now have 250k to put down on a new house.
    They buy a new house for 600k. 600k – 250k = 350k for the new mortgage.
    350K @ 10% = $3071 per month payment. P&I only.

    Their payment has more than doubled and they’ve barely moved up.

    Move them up to a 750k house with a mortgage of 500k at 10% interst and it gets worse.

    500k @ 10% = $4387 payment per month. P&I only.

    When interest rates rise people have a tendancy to stay in their old homes longer.

  89. 89
    deejayoh says:

    Barry Ritholz (of The Big Picture) on To the Point on NPR this morning, giving a good rundown of the banking crisis.

    worth listening

    Economic Crisis: Reality and Psychology
    THU JUL 17, 2008
    Institutions put in place after the Great Depression are supposed to insure that no such thing can happen again, but major financial institutions are in big trouble. Have the regulators been failing to do their jobs?

  90. 90
    Rentersarelosers says:

    “Really now? How’s the stock market doing? ”
    ………………….

    Glad you asked, I know the typical Bubblehead is way to absorbed in this Pessimistic Blog to look for themselves.

    Earnings are coming in meeting and/or above expectations.
    The Dow has rallied over 550 points in the past couple of days.
    Oil is tanking from a high of 147 to now under 130.
    The rally is expected to continue………

    You all missed the bottom.
    Big Surprise.

    Renters are losers

  91. 91
    jon says:

    When interest rates look like they are going to go up, people may rush their purchase at the low rate. Maybe that is why June sales went up, and perhaps July could be good also. (And maybe inventory took a one time hit because of the MLS rules changes.)

    As interest rates rise and first time buyers are forced down the market to lower prices, there will be a lower demand at each price level that is above median. Below the median, demand will actually be increased at each price level. (The mode actually, not the median, and assuming the distribution of buyers is bell shaped.)

    Offsetting that is are the benefits of real estate in an inflationary or high interest rate environment. The big ones are the capital gains exemption and the interest deduction. If rents rise with inflation, then the property value will increase over time. Those benefits will cause people to take money out of taxable CDs etc and put it into real estate.

  92. 92
    RAL=Choad says:

    You are an idiot.

    Where were you last week? I know….begging people to buy and getting ready to jump on this board and post comments once the market has a small rally. Ever hear of a dead cat’s bounce?

  93. 93
    Yaoyao says:

    Amy,
    You are funny. Guess we will continue to be crumbs of society as long as silly troll like you tries to sell $800k house for 2-3 million to the “cream of society” as you put it. Get lost then we may buy.

  94. 94
  95. 95
  96. 96
    mark says:

    Bear markets do rally. It sucks in the dumb money – never to give it back.

    Earnings expectations have been consistently lowered and now some companies are beating those lowered expectations. Time to rally. The DOW, S&P500, and NASDAQ are dead money over the past 9 years.

  97. 97
    NoMoreWork says:

    “RAL=Choad” Hilarious.

    Dead cat bounce for sure. WaMu fell from $45 to 3 and is now back up to ~5. Whoo Hoo!! indeed.

    All this talk of the “bottom”, but I think once we reach it we’ll be down there for a while. We’re sinking right now and once we hit the sea floor we’ll just have to walk along it until we can climb up the other side. This will take some time. It’s just too bad we seemed to climb a high mountain right before the plummet, so we have a ways to fall.

    Don’t worry about missing the bottom in the housing market. Once it finally sets in, it will stay flat for quite some time.

  98. 98
    Scotsman says:

    RAL, you are TOO funny! Let’s see….

    “Earnings are coming in meeting and/or above expectations.”
    What planet are you on? Coke missed today, most are only meeting DECREASED expectations

    “The Dow has rallied over 550 points in the past couple of days.”
    Yah, but it’s still down a bit from 14,000, and when you consider inflation it’s a joke. I’ll be you it closes out the year under 10,000.

    “Oil is tanking from a high of 147 to now under 130.”
    Yup, and just up a bit from $60 in May, 2007. Isn’t that a doubling?

    “The rally is expected to continue………”
    Just until all the shorts capitulate.

    Have you been drinking too? Put down the Kool-Aid!

  99. 99
    Scotsman says:

    “Flat is the new up!”

  100. 100
    Rentersarelosers says:

    Choad?

    Say what you will, while you are wasting your life on this useless blog I am making good money on the markets, both long and short.

    By the way, are you posting from a 1 br rental or 2 br? How are the bus fumes?

  101. 101
    RAL=Choad says:

    I am posting from a 3 br home that I purchased 7 years ago. I don’t need to play the markets at all, dummy because my home is now worth millions of dollars and I’ll never have to work ever again, ha! How’s that long position in WM holding up?

  102. 102
    Rentersarelosers says:

    Don’t have a position in WM, never have.

  103. 103
    RAL=Choad says:

    Well, you better go. I’m sure the phones are ringing off the hook with buyers looking. I mean…I know you’re really, really busy and the market’s never been hotter.

  104. 104
    obelus says:

    How can anyone not believe this is only the beginning of major price reductions? I am watching housing in the “good, sticky” neighborhoods near me (N Seattle) drop prices 50 to 60 thousand in less than a month and still not getting sold. The complete oppposite of the frenzy that started in 2000 (yes, folks, the Seattle area saw spikes in the late 90’s even).

    We have yet to see any regional bank failures (it will happen) or sustained job losses in large amounts or foreclosures on every other block, yet already prices are dropping 50K+ and houses pulled off the market because of no offers.

  105. 105
    mark says:

    Isn’t America great? We have a place where social retards can sit at home in their underwear, hunched over a keyboard, flipping stock certificates, paper, hoping to make a living. Talk about an economicaly worthless persuit!

  106. 106
    TJ_98370 says:

    .
    One should always be interested in expanding one’s vocabulary:

    choad

  107. 107
    mark says:

    JP Morgan earnings estimates:

    Current Estimate 0.44
    7 Days Ago 0.47
    30 Days Ago 0.67
    60 Days Ago 0.77
    90 Days Ago 0.78

    Actual was 0.54

  108. 108
    Bits_of_Real_Panther says:

    Not an owner, not a renter, the choad is that little space in between

  109. 109
    Civil Servant says:

    Team Obelus.

  110. 110
    Buceri says:

    Don’t worry – they don’t have good jobs down there…….

    AP
    Thursday July 17, 1:25 pm ET

    San Francisco Bay area home prices plunge 27.1 percent in June to lowest figure since 2004

    SAN DIEGO (AP) — A research firm says home prices in the San Francisco Bay area plunged 27.1 percent in June to the lowest level since March of 2004.

    DataQuick Information Systems says in its report Thursday that the median price for new and resale homes and condos stood at $485,000 last month, down from the market peak of $665,000 in June 2007.

    The figure also marks a decline from $517,000 in May.

    Sales in the nine-county area fell to a 15-year low for June. There were 7,178 new and resale homes and condos sold during the month, up nearly 16 percent from May but down 10 percent from June 2007.

  111. 111
    Rentersarelosers says:

    Isn’t America great? We have a place where social retards can sit at home in their underwear, hunched over a keyboard, flipping stock certificates, paper, hoping to make a living. Talk about an economicaly worthless persuit!
    …………..

    You mean social retard Bubbleheads on this forum posting shit like

    Oh Goodie! a Strike!!!
    Where can I find how much they owe I wanna lowball them!

    >Talk about an economicaly worthless persuit<

    Like the Seattle Bubble blog perhaps? Can’t even raise a measly 2500 bucks in what 2 months?

    You need to look at yourselves and what this site has become before you criticize others. The attitudes on this site are TOXIC.

  112. 112
    Ray Pepper says:

    OUCHHHHHHHHHHHHHHHHHHH

    GOOG and MSFT after hours…TIMBER!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

  113. 113
    mark says:

    MER estimates(Merrill Lynch):

    Current Estimate -1.91
    7 Days Ago -1.91
    30 Days Ago 0.16
    60 Days Ago 0.47
    90 Days Ago 0.62

    Actual (-$4.95)

    Rally time!

    RAL, you’ve got issues that are easy to exploit! You’re a loser!

  114. 114
    RAL=Choad says:

    Then why are you here?

  115. 115
    TC says:

    RAL,

    I can’t agree with you more. However there seems to very few people, on this site, that feel the same way.

    It is a road to nowhere fast to try and present a different prespective.

    But here we are trying to debate with them.

    Cheers

  116. 116
    Rentersarelosers says:

    Ray,

    “Nuzzling” the Bubbleheads in hope of some business, any business?

    C’mon someone throw Ray a bone………

  117. 117
    RAL=Choad says:

    I guess people on this site are making some headway into preventing people from making an unwise decision and have exposed that most of the people in the real estate “profession” are not looking out for their clients’ best interest. My guess is that’s why you guys are running scared as you have seen your checks reduced significantly over the past year. It’s ok, though. There’s a sucker born every minute.

  118. 118
    Bits_of_Real_Panther says:

    The median priced home in the San Francisco area today doesn’t look anything like the median priced home last year

    From that same article:

    “Last month foreclosure resales made up 28.7 percent of all Bay Area resales, up from 27.6 percent in May and 3.5 percent a year ago.”

  119. 119
    TC says:

    Why are talking about San Francisco? The median house price in that area is well above anything in this area.

    The areas that have the largest run ups will and can have a longer way to fall when prices come down.

  120. 120
    Buceri says:

    “Why are talking about San Francisco?”

    Because, it helps throw the “they are not making any more land” argument out the window.

  121. 121
    Scotsman says:

    RAL-

    Shouldn’t you be out pulling weeds and sprucing up the homestead? Try raising the price another $10,000 and see if it sells any faster.

  122. 122
    Bits_of_Real_Panther says:

    Just wanted to point out that the median price is not a useful gauge of a local housing market when the mix of homes being sold has changed so dramatically.

    The same thing will happen in Seattle to some degree and I’m hoping that commenters here will be as critical of bad information as median price falls as they were when the median price was rising, but I’m skeptical

  123. 123
    Rentersarelosers says:

    I guess people on this site are making some headway into preventing people from making an unwise decision and have exposed that most of the people in the real estate “profession” are not looking out for their clients’ best interest.
    ……………….

    “people on this site” have gone way beyond preventing people from makiing unwise decisions and have adopted a totally toxic attitude.

    It is as if sellers and real estate agents are the enemy and Bubbleheads are on the attack even though most of you have no intention of purchasing now anyway..

    Being happy about a legitimate strike in the hope of lowballing some poor guys home is absolutely twisted. Same goes for trying to find out how much someone owes in order to squeeze them till their eyeballs pop out of their sockets.

    Sellers and Real estate agents are Americans, they are your neighbors, hell you might even have a good friend that is a seller in this market.

    Bubbleheads are a sick twisted bunch, but in all honesty, you probably weren’t like this when you arrived here. The Seattle Bubble blog was the catalyst.

    Seattle still not tumbling to where you want it I guess……….

    Maybe it never will.

  124. 124
    Rentersarelosers says:

    Scotsman

    Off the market.

  125. 125
    Rentersarelosers says:

    TC,

    Thanks.

    Cheers to u too!

  126. 126
    RAL=Choad says:

    RAL, lower prices are a GOOD thing.

  127. 127
    Ray Pepper says:

    No need to throw bones my way…I just run CNBC all day in the office and when I hear BIG NEWS after hours I tend to let everyone know. GOOG down 50.00 and MSFT tanking was BIG NEWS! MER is a wasteland!

  128. 128
    deejayoh says:

    Why are talking about San Francisco? The median house price in that area is well above anything in this area.

    surprisingly, not so much any longer. “bay area” median is now at $485k according to Dataquick. While this is a much broader area than King County, I was surprised how close it was to our current $460k median.

  129. 129
    Please Buy My House, Idiot Renters! says:

    “While this is a much broader area than King County, I was surprised how close it was to our current $460k median.”

    It’s because Seattle’s February weather is so much nicer than the Bay Area…

  130. 130
    jon says:

    DataQuick’s comparable area in WA includes King, Snohomish and Pierce counties. The median for that region is $345k.

  131. 131
    Bits_of_Real_Panther says:

    The variance of housing stock in the Bay Area is staggering by comparison. Parts of Alameda County are literally war zones then you have exurbs like Solano and Contra Costa that have no economic base at all and are just getting hammered with foreclosures. Seattle’s closest comps would be parts of Pierce and exurbs of East King and North SnoCo, not very similar

  132. 132
    deejayoh says:

    DataQuick’s comparable area in WA includes King, Snohomish and Pierce counties. The median for that region is $345k.

    I figured that was the case – that was why I added the “broader area” caveat.
    I also am not sure whether or not the dataquick number was just SFH or all sales.

    But from the standpoint of wealth and density, the whole Bay Area looks much more like King county than Pierce or Snoho. I was just down there Tuesday and was reminded again…

  133. 133
    Bryant says:

    Can’t someone lookup the historical data see to see if this hypothesis holds any water?

  134. 134
    jcricket says:

    The problem with the historical data is that the willingness/ability of people to buy houses isn’t just tied directly to interest rates or the home price. It also has to factor in rising/declining incomes, rising/declining prices for other consumer goods, consumer market sentiment, etc.

    So you could have rising rates and rising prices and still have people buying because incomes are rising faster. Or falling rates and falling prices but no one buying because incomes are declining too.

    BTW, as a general note during every U.S. market panic (12 since World War II according to John Schneider of JS Asset Management), people have tended to say that it is a new paradigm and it is foolish to buy. However, EVERY market panic has recovered. In fact, on average, the market was up over 50% two years later. Secondly, bear markets have correctly predicted 10 out of the last 5 recessions (you read that right, the markets have been bearish twice as often as there have been real recessions).

    Sure, this time could be different, but my guess is you could read the same headlines, find the same types of people using “incontrovertible facts” during each of those market panics/downturns.

    Not saying anyone should rush out and buy a house, speculate on RE, put all their money into WaMu – just that I don’t buy the long-term doom and gloom in any way.

  135. 135
    economist says:

    It is astonishing how many real estate agents don’t have a grasp on reality and basic economics.

    Why? Does a successful car salesman have to know anything about auto mechanics?

    Real estate agents are not investment managers or advisors. They are commissioned salespeople hired for the express purpose of extracting as much money as possible out out the buyer.

  136. 136

    Amy, mortgage rates are not based on the 10 year note…they are based on mortgage backed securities (bonds). They often will trade in different directions. Brian Brady does a great job explaining this: http://www.bloodhoundrealty.com/BloodhoundBlog/?p=2663 …so I don’t have to. ;)

  137. 137
    Eleua says:

    PIMCO Insurance Profile #97 – Pacific Northwest Arrogant Know-it-all

    You can usually find these people trolling around ‘bubble-blogs’ telling everyone how smart they are and how they can trade the market in both directions without getting killed. They know exactly when to buy property and lord it over people that they terms “losers” because they rent.

    Their financial prowess knows no bounds. They can cram eight to ten hours of financial reading and chart studying, 10Qs, balance sheets, earnings reports, all while having time to carry on pointless arguments on “bubble blogs” with people they believe are too dumb to have a job or too myopic to have a life.

    Yes, these financial titans seem to have 40 hours in every day to accomplish all they do, while still getting out to enjoy all the reasons people move to Seattle – mountains, salt water, lakes, rivers, and a sexy job in the downtown core.

    Their financial muscle can sniff out value in all matters of complex publicly traded companies and bloviate on how a bottom has been reached, but the myopic losers apparently missed it. This all sounds good, especially when the boast is made 77 minutes before GOOG, and MER whiff big-time and send the /ES futures down enough to wipe out 1/3 of the rally’s gain.

    Oh yes, they know the value of a house. Renters are losers because they don’t spend 12X income on a home that they can rent for 1/3 of the cost to carry it.

    Pacific Northwest Arrogant Know-it-all Dude, we salute you and that great glob of grey matter that makes you better than the rest of us.

  138. 138
    TJ_98370 says:

    TJ_98370 says:
    refrence post #135:

    It is astonishing how many real estate agents don’t have a grasp on reality and basic economics.

    Why? Does a successful car salesman have to know anything about auto mechanics?

    Real estate agents are not investment managers or advisors. They are commissioned salespeople hired for the express purpose of extracting as much money as possible out out the buyer.M

    As a long time reader of this blog, this is a concept that seems to be lost on many who visit. Self interest dictates that sales people will push the deal the most advantageous for themselves. It is naive to think otherwise.

    Caveat emptor!

  139. 139
    jcricket says:

    eleua – nice of you to write such a detailed profile of yourself. I didn’t see anything about how you predict with certainty greater home price drops and other economic catastrophe than have been seen in America since, well, ever, but otherwise, very accurate. I’m impressed.

  140. 140
    Eleua says:

    Jcricket,

    Thanks for noticing. It’s nice to be loved by so many.

  141. 141
    Rentersarelosers says:

    In January 2008 30 year Mortgage could be had for 5.5%
    King County av SFH price was $430,000

    In June 2008 King County SFH price increased to $450,000
    30 year mortgage rate is up now to 6.5%

    FYI for those that don’t think they missed the bottom.

  142. 142

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