Interest Rates SKYROCKET! Everybody PANIC!

Yesterday the Seattle Times ran a syndicated Associated Press piece that came across to me as especially over-the-top: Homebuyers scramble as mortgage rates jump (emphasis added):


The era of record-low mortgage rates is over.

The average rate on a 30-year loan has jumped from about 5 percent to more than 5.3 percent in just the past week. As mortgages get more expensive, more would-be homeowners are priced out of the market — a threat to the fragile recovery in the housing market.

“We are seeing some panic among potential buyers who have not found houses yet,” said Craig Strent, co-founder of Apex Home Loans in Bethesda, Md. “They’re saying: Man, I should have found a house three weeks ago or last month when rates are lower.”

It’s all about affordability. For every 1 percentage point rise in rates, 300,000 to 400,000 would-be buyers are priced out of the market in a given year, according to the National Association of Realtors.

The rule of thumb is that every 1 percentage point increase in mortgage rates reduces a buyer’s purchasing power by about 10 percent.

Here’s a recreation of their included chart, using interest rate data from the Federal Reserve:

1 year of Historic Mortgage Rates

Note that their chart includes only the last year. What does it look like if we zoom out a bit, say to the beginning of 2000?

10 years of Historic Mortgage Rates

Suddenly that uptick at the end of the chart doesn’t look so scary. “Oh no, interest rates are skyrocketingto a level still well below where they were for most of the last decade! What ever will we do?” Give me a break.

How about a 20-year view of rates, just for fun?

20 years of Historic Mortgage Rates

Rates could shoot up a full point-and-a-half, and still be in the range that they were during the housing bubble when we were all subjected to an endless barrage of mortgage finance ads extolling the “historically low interest rates.” So why exactly should we be terrified and jump-into-the-housing-market-right-now-quick-before-it’s-too-late?

The AP’s rationale seems to be that because a rise in rates will reduce buyers’ purchasing power, it will therefore result in a big dip in demand.

In a normal market, with home prices steadily rising, a jump in rates doesn’t cause a big dip in demand. That’s because people know their homes will eventually rise in value and they’re willing to accept a higher mortgage payment.

But now home prices are flat nationally and still falling in some places. Potential buyers are nervous about jumping in.

“In this environment, any rise in mortgage rates does significant damage because people don’t think they’re going to get their money back” if prices fall, said Mark Zandi, chief economist at Moody’s Analytics.

Of course, what they seem to be ignoring (intentionally or not) is the flip side of the equation… If buyers have less purchasing power, won’t that just put more pressure on home prices to keep coming down to a point where the qualified buyers can afford them?

Nah, that would never happen.

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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.


  1. 1

    I think if you go back to about December there were similar calls of panic because rates were rising. There are two differences between now and then. First, you could have easily predicted this current increase due to the change in policy in supporting mortgage backed securities. Just the uncertainty over that change would result in a rise in rates. Second, because of the change in policy we don’t really know as well what the future holds. Back in December I was a bit more willing to brush off the move up as just as likely being temporary as being the start of a move up. This time it’s perhaps a bit more likely that it is the start of a move up, but it could also simply be another blip.

  2. 2

    Yes, the days of dropping house prices is over, and from now on until eternity, house prices only go up. If you combine that with rising interest rates, nobody will ever again afford to be a home buyer unless you do it right now.

  3. 3
    ray pepper says:

    High rates? Have seller pay your points down! Works great! Builders are buying rates down to 3.5% everyday.

    What a horrible reason to hurry and buy a home…Because of rates going up. Simply fascinating people fall for this.

    Mortgage Reps and Agents who promote this type of BS are on my Bashing List!

  4. 4

    RE: Ira Sacharoff @ 2 – Then there’s also the other side’s argument, that because of the rising rates, prices will crash 80%.

  5. 5
    Packet says:

    Panic? For something that’s been completely predicted for months? Amazing. Everything I had heard was we could expect rates to go up ~.5% due to the fed stopping its MBS program.

  6. 6
    S-Crow says:

    As rates increase, ARM’s will start to gain traction. I’m already seeing more ARM’s (esp. in refi’s) coming back.

  7. 7
    GoneFromSeattle says:

    The panic should belong to sellers:

    “Oh snap — my potential buyers just lost X% of their buying power, if only I had dropped my price Y% ( Y < X ) last week and had been able to attract a buyer, then I would have been able to get more money to sell my house. Now I'm looking at a 1/(1+X) decrease in the amount of money I'll make selling my house."

  8. 8

    By Kary L. Krismer @ 4:

    RE: Ira Sacharoff @ 2 – Then there’s also the other side’s argument, that because of the rising rates, prices will crash 80%.

    I think the argument there is only partially affected by interest rates. The world economy is collapsing and pretty soon if you want to buy a house all you’ll need to do is barter a few cans of beans and a few guns.

  9. 9
    Chuck Ponzi says:

    Gone from Seattle:

    Unlikely. As well all know, apartment dwellers are barely able to do simple math, much less algebra or balance a checkbook. Why else would they be apartment dwellers or dirty renters?

    Homeowners need not fear, their houses will increase in value in perpetuity, regardless of what rates do, or the price of beans or guns. Because, as well all know, houses will clothe you, feed you, and provide you with pink ponies into the eternities.

    Renters are soooo dumb.

  10. 10
    Dave says:

    Good, that will depress home price further. I rather pay for lower price with higher rate than higher price with lower rate. The home price is what you owe, not the rate even though the payment maybe the same. Plus the yearly property tax will be lower. If you prefer higher home price, you’re doing a great harm to your children. They will have to work like hell just to have a roof over their heads. BAD !! BAD !! BAD!!! That’s what the banks and government are trying to do right now, keep the home price high. In a sense the government are doing what’s BAD for people. I have friends bought the house because of the FHA low down payment and the first time buyer rebate, now already under water by tens of thousands of dollars. Price will have to go down a lot further. The government and the banks need a lot of scapegoats so they can have a softer landing. Who want to volunteer ? Not me.

  11. 11
    HappyRenter says:

    What caused rates to fall from 2000 to 2003 and from 1990 to 1994?

    It seems that there has been in general a downward trend from the 1990s. Why?

    Also, could we zoom back to 1950 or earlier?

  12. 12
    BubbleBuyer says:

    Comrades, don’t worry. Soon economic fundamentals will stop applying and we will all have government jobs and free mansions provided by comrade Obama.

    I would however, like to take this opportunity to thank comrade Obama and comrade Geitner for my 4.5% 30 yr FRM.

  13. 13

    High Interest Rates are Good for the Economy

    We know it’s slamdunk that constantly lowering interest rates [with flat household incomes]to the current short term 0% treasury rate, to purposely cause a real estate bubble the last decade, has destroyed the economy; whether Greenspan admits it’s the root cause or not.

    Everyone at least dreams of retiring, but assuming the approx current 1% earned on 401Ks or other retirement savings vehicles is longterm [IMO it is], it’s gonna take approx a fully funded Social Security system [LOL] and $1.2 million dollars in retirement savings per $100K salary worker to retire on 70% of your current pay. Assuming Social Security tanks for you, add approx $1M additionally needed in retirement savings for every $1000/mo Social Security decreases when you retire.

    Sounds like most of us will work until we die for the real estate Cow Manure god.

  14. 14

    By HappyRenter @ 11:

    What caused rates to fall from 2000 to 2003 and from 1990 to 1994?

    In 2000 we were heading into a recession, where you would expect rates to drop. Then there was also 9/11.

    I would question whether what the government did to offset 9/11 lead to part of what caused the bubble in credit. I think it was Dave Ross back then who was commenting that in prior “wars” we were asked to make real sacrifices, where for the war on terror we were asked to shop!

  15. 15
    Packet says:

    RE: Dave @ 10 – Your property taxes aren’t going to change in WA if prices take a nose dive. Your taxes are a % of the overall. Unless the condition of the house itself changes relative to its neighbors, you’re paying exactly the same.

  16. 16
    The Tim says:

    By HappyRenter @ 11:

    Also, could we zoom back to 1950 or earlier?

    The post I linked to in the second-to-last paragraph above has a couple of charts with interest rates back to 1950: Do Rising Interest Rates Lead to Falling Home Prices?

  17. 17

    BTW, one of the articles I read on this mentioned that the rates were at an 8 month high! I thought to myself–wow, that is horrible. You’d have to go back a whole 8 months to find rates this high.

  18. 18
    One Eyed Man says:

    RE: HappyRenter @ 11

    I don’t have a chart for you Happyrenter, but Freddiemac’s tables get you back as far as 1971.

    Sometime back I calculated the average 30 yr fixed rate since 1971 based upon Freddie’s numbers and I believe that it was about 7.5 or a little over. I believe that 30 yr rates in the 1950’s were in the fives and sixes. And in the sixties I think they moved up into the sixes and sevens. BEA might have a table with the rates going back farther, but I haven’t checked to see.

  19. 19

    RE: One Eyed Man @ 18 – Check out those rates in 1981!

    I seem to remember a girlfriend’s parents having rates in the 5s or 6s at about that time, as the result of an old mortgage. It seemed incredibly low at the time.

  20. 20
    HappyRenter says:

    Does it make sense to get 15 years mortgage instead of a 30 years mortgage? Assuming you can afford the monthly payments. I mean, does the higher tax break in a 30 years mortgage really help you?

  21. 21

    By HappyRenter @ 20:

    Does it make sense to get 15 years mortgage instead of a 30 years mortgage? Assuming you can afford the monthly payments. I mean, does the higher tax break in a 30 years mortgage really help you?

    No, you wouldn’t want to pick the 30 year for that reason. For every dollar you pay in interest you only typically get back 30 cents at most. So I wouldn’t base it on the tax break.

    If you wanted to do that type of an analysis, you’d want to compare it to some other investment instead. Of course, for many/most people if they did that analysis and picked the 30 year instead, they’d end up spending the money saved on dining out, lattes, etc., rather than the investment they planned.

  22. 22
    The Tim says:

    Lennox Scott liked the scare-tactic AP article so much he posted the entire thing on his blog.

    The bottom line is that it’s important for potential buyers to understand how quickly they can get priced out of the housing market with each uptick in interest rates.

  23. 23
    BillE says:

    By HappyRenter @ 20:

    Does it make sense to get 15 years mortgage instead of a 30 years mortgage? Assuming you can afford the monthly payments. I mean, does the higher tax break in a 30 years mortgage really help you?

    The higher tax break only happens because you pay more interest to the bank. I’m surprised at the number of people who go out of their way for the tax breaks without realizing that they have to pay a bank interest to get a fraction of that off on their taxes.

  24. 24
    Lurker says:

    Nobody panic. Rates are going to inch up, this is natural and needed and house prices will correct themselves accordingly. The fed will jump back in and buy MBS again if rates get too high too quickly. This is just part of their master plan to slowly let the air out of the bubble. I find it pretty clever myself but it can be a drawn out hell for those of us waiting on the sidelines wanting to buy.

  25. 25

    By BillE @ 23:

    By HappyRenter @ 20:

    Does it make sense to get 15 years mortgage instead of a 30 years mortgage? Assuming you can afford the monthly payments. I mean, does the higher tax break in a 30 years mortgage really help you?

    The higher tax break only happens because you pay more interest to the bank. I’m surprised at the number of people who go out of their way for the tax breaks without realizing that they have to pay a bank interest to get a fraction of that off on their taxes.

    I remember back in my college days that one of my accounting professors hated doctors. His comment was that they would flush a dollar down the toilet to save 30 cents on their taxes. I’m not sure that behavior is limited to doctors, however. That was just his least favorite group.

  26. 26

    BTW, one other reason for the increase would be the increased demand for loans brought on by the expiration of the tax credit? Presumably loan pricing is based on applications as they come in, not on when they actually fund.

  27. 27
    BillE says:

    There really seems to be a media blitz going on today with rates increasing and the tax credit deadline approaching. Let rates go up. People can afford what they can afford.

  28. 28
    Lurker says:

    RE: BillE @ 27

    Really good timing right before ‘National Open House Weekend’ or whatever it’s called. I need to remember to buy me some Nestle Toll House Chocolate Chips stock by the end of the day.

  29. 29
    LA Relo says:

    Rates go up; as a result, do:
    A. Incomes go up to sustain already inflated home prices
    B. Home prices go down as monthly payments (result of principle and interest rate) which determine what people can afford cannot increase without A.

    One of these days the media, Gov’t, consumer groups, and even the NAR, okay maybe not them, will realize lower home prices are a GOOD thing.

  30. 30
    Sottocapo says:

    As much as I know people who will suffer losing their home if they cannot sell asap I will be happy to see interest rates go up and prices come down. We plan on paying cash for a house in a few years if it makes economic sense. Many people with a vested interest have been trying to delay the inevitable price crash and we have collectively as taxpayers thrown lots of money down a big hole since 2008. We have to face the music and accept that it was a mass delusion. Prices in Seattle are coming down and will come down even if everyone is clinging onto the cliff face by their fingernails. There’s only one direction prices are going and it’s not up.

  31. 31

    RE: Sottocapo @ 30RE: Sottocapo @ 30 – You do realize that there’s more to the analysis of whether it’s good or bad than whether it’s good or bad for you personally, right? Maybe we could get Ray in here to round up some of his buyers to post about how rising home prices are good! ;-)

    For the economy as a whole, I would say that steady home prices are good. Ones that rise or fall at relatively tame levels.

  32. 32
    Sottocapo says:

    Yes I understand that, and I think it is good that young families will be able to afford a home again in maybe 5 years time. We sold a house last year that we bought in 2001 as we saw the writing on the wall. There is a generational split here – just like with the healthcare bill. Boomers want high prices on all their “investments” now they need cash for retirement. People under 45 and especially under 30 want to be able to live without being debt slaves to student loans, social security and ridiculous house prices.

    I see the main issue as employment. No jobs=no ability to create new households. I cannot see any logical reason for house prices to stay at current prices.

  33. 33

    RE: Sottocapo @ 32 – I still think you’re analyzing this based too much on the fact that you don’t currently own, and now apparently on wanting to justify your 2009 sale as being rational/prudent.

    It reminds me a bit of what’s going on in Olympia right now, where they’re afraid that voters will react too much to sales tax increases, so they’re passing increases that are more likely to lead to more unemployment. An analysis of financial/economic issues should be based on neutrality, not on personal consequences.

  34. 34
    Sottocapo says:

    It was rational and prudent as similar houses have now lost another 50k-100k in that neighborhood since we sold in June 2009. Do you happen to be in the Real Estate business Kary? I am new here.

  35. 35

    RE: Sottocapo @ 34 – Yes, I’m an agent, and I generally advise people against either buying or selling if their primary reason for doing so is because they think prices are going to go up or down.

    Are you talking locally? I’m not familiar with any area that has lost that much in that time frame, unless it was a very expensive property, in which case judging what it is worth with that precision would be difficult. What area are we talking about, and how many beds/baths and year built?

  36. 36
    Anon. says:

    Rates rising is the absolute BEST indicator that you should not purchase a home if you are planning on selling it soon (i.e. within 7 years.)

    Peoples’ buying power is greatly reduced, and therefor so is the value of your home.

    If anything, you want to buy when rates are the highest, and about to crash low.

  37. 37

    RE: Anon. @ 36 – You might want to compare rising interest rates in the late 70s, early 80s to house prices here in the Seattle area. But as I’ve noted before, loans were all basically assumable (technically property could be bought subject to the loan), back then, so a low interest loan had value. That probably contributed to the rise in house values.

  38. 38
    Sottocapo says:

    We lived in downtown Kirkland and prices have dived across the board there at all price levels . We were relocating and first thought we would rent out our house but then decided to sell. We made sure our house was in fantastic condition and marketed correctly which included a realistic price but we were still very glad to find a buyer within a few weeks. I have not seen any neighborhood around the Puget Sound where prices have held steady, everything is declining. We had/have no concerns that we will be able to buy back into this market in the future should we care to. Our Real Estate agent was the one who a month ago sent us an email saying we were very lucky to get the price that we did and that similar homes were now selling at significantly lower prices. A good friend of ours has been trying to sell in the same area for over a year with numerous price reductions and has had NO offers, this is with an unobstructed view of Lake Washington. The party is over Kary. These maybe anecdotal but the anecdotes are backed by the comps.

    Who bought our house? A full cash offer from a Chinese investment company! What does that say about the American economy?

  39. 39

    […] …and please don’t fall for the media hype regarding rates rising. Take a look at another point …. […]

  40. 40
    mark says:

    RE: Kary L. Krismer @ 14

    And I got a bronze star from the WalMart greeter. I’m a hero!

  41. 41
    Daniel says:

    By Sottocapo @ 38:

    We lived in downtown Kirkland and prices have dived across the board there at all price levels .

    I helped two of my relatives move two weeks ago. Rents in Kirkland are much cheaper than anything you could have found a year or two ago, so both of them wound up renting a townhouse there and they pay less than I pay for a tiny 2 bedroom postage stamp in a Vancouver (BC) basement. They also considered moving in with each other (they are siblings) and looked at 4-5 bedroom houses in both Bellevue and Kirkland neighbourhoods. There was not much on the market that they liked but again, rents seem to have come down a lot since my wife last searched for rentals in that area a few years ago.

  42. 42
    THom says:

    I am confused,. I read a different story in the press.

    Even WSJ is suggesting to jump in and buy real estate!

  43. 43
    Scott Weitz says:

    RE: Kary L. Krismer @ 35

    Great move, Sattocapo.

    You can certainly predict real estate based on fundamentals. There is no way this ‘recovery’ has legs. We’d have to print a LOT more money, and send it directly to the people (which obviously would have its own draw backs). Get ready for a long 5 years, and much lower real estate prices in the Seattle area.

  44. 44
    One Eyed Man says:

    RE: Scott Weitz @ 42

    “You can certainly predict real estate based on fundamentals.”

    If that were always true Scott, we wouldn’t have bubbles. The fundamentals said Seattle was over valued after 2001 or 2002. If you predicted based upon fundamentals like price to income ratios, rent v. own statistics and gross rent multipliers, Seattle’s over exuberant demand for homes would have stopped around then.

    “We’d have to print a LOT more money”

    I thought the 1.6 trillion in Fed purchases of treasuries and GSE debt was a lot of money. I think it was about equal to the low estimates of predicted loses on banks residential real estate loan portfolios last year.

    “Get ready for a long 5 years, and much lower real estate prices in the Seattle area.”

    If by much lower you mean perhaps another 10%, I agree. But even if that’s true, you apparently don’t see that as “recovery.” IMHO that’s what recovery looks like. The Fed bought just enough treasuries and GSE debt to stop deflation cold, but not enough to create huge inflation (at least not yet). The GSE purchases helped keep mortage rates low so the real estate market wouldn’t collapse. GDP is growing slowly with limited job creation in part because we can’t compete with the price of foreign labor. Housing prices will drift down slowly which will slow the rate of mortgage defaults and loses to the banks. The yield curve will remain steep so the banks can earn their way out of the hole over time in a defacto workout engineered by the Fed and Treasury.

    That’s what recovery looks like. It’s slow and it ain’t pretty. But when you’ve got to work off 2 plus trillion in loses, it tends to take a long time. And the powers that be concluded 18 months ago that they were going to save the financial system first because a collapse of the large financials would likely cause irrepairable material harm to the economy.

    The economy is on chemo therapy and the financial cancer is in remission. If the patient improves, later this year they’ll start selling back treasuries and GSE’s and raise short term rates. If the patient deteriorates, they’ll buy more treasuries and GSE’s. But for now they’re just bidding time and watching the economic indicators while the estimated 3 or 4 years of workout keeps slowly rolling by.

  45. 45
    ray pepper says:

    Just a few points:

    1. Lots of Buying activity but its the foreclosures and short sales that get all the attention.(rightly so) This will continue for many years further deteriorating prices in the PNW.

    2. The cost to purchase is still far to high compared the cost to rent even after this 25% drop. We have a long way to go.

    3. Rates are simply meaningless at this point. Its the FED we must watch.

    4. Fed Stimulus will have TREMENDOUS effect on this market over the next decade. If your not astounded by what the FED has done already Since January 2009 you must have been in a coma. Never count out Fed Stimulus.

    In essence I suggest everyone read/watch these and pass it onto their friends so you can educate them:

  46. 46
    Scotsman says:

    RE: One Eyed Man @ 44

    “The economy is on chemo therapy and the financial cancer is in remission.”

    No, it’s not. The patient is already dead, it’s just that the body hasn’t cooled yet so some are fooled.

    You’re a smart guy, One Eye, but too narrowly focused. The “cancer” was and is about much more than just housing prices and bank balance sheets. Those are the symptoms, not the disease.

    Before you assume that the door is open and we’ll eventually walk out the end of this tunnel you have to consider the whole of the situation. I would argue that the economy was dead even without the housing/banking crisis. Unfunded entitlements, pensions, (private, state, city) and depreciated infrastructure would be enough to bring this country to its knees. Add in 3 decades of debt funded GDP as opposed to real net growth, a shifting and ever more competitive world economy, a political system that does little to facilitate let alone support potentially critical energy independence and you have an economy and society that will eventually have its legs pulled out from under it. The housing bubble has inflamed an already well entrenched infection, nothing more. And minimizing the sepsis won’t do much to help the marrow recover.

    There really is no way out that doesn’t eventually collapse the living standard of the U.S. and force it to rebuild from the foundation up. But it will take decades, not just a couple of 3 year plans to put the current imbalances behind us. I think a huge number of people realize this both intellectually and emotionally, but the scope of the coming change/turmoil is more than most can handle so varying doses of denial rule the day-to-day aspects of our lives while we swallow small bitter pills of reality.

  47. 47
    Daniel says:

    By Scotsman @ 46:

    I think a huge number of people realize this both intellectually and emotionally, but the scope of the coming change/turmoil is more than most can handle so varying doses of denial rule the day-to-day aspects of our lives while we swallow small bitter pills of reality.

    If all you are used to is being sick the idea of getting healthy might be frightening. If you hang on to a treasured belief system, you will not want to miss it.

  48. 48

    RE: Scotsman @ 46
    I think it’s more like:
    The cancer is in remission, but the brain is failing, the heart is failing,the arteries are filled with concrete, and the doctor is a senile graduate of Barnum and Bailey Clown College. But he’s wearing a white coat, and he says we’re recovering.

  49. 49
    BillE says:

    Lots of gems in the Everett Herald’s NAR “Open House” section.

    “If you do not own a home, you might as well buy one because you’re already contributing to a mortgage: your landlord’s.”

  50. 50
    Scotsman says:

    RE: Ira Sacharoff @ 48

    Brevity, accuracy, and wit. You’re good. ;-)

  51. 51
    Buddhamind says:

    RE: Kary L. Krismer @ 35

    “Yes, I’m an agent, and I generally advise people against either buying or selling if their primary reason for doing so is because they think prices are going to go up or down.”

    That statement doesn’t make any sense to me. The largest leveraged investment purchase in one’s lifetime should be treated primarily as a large, highly leveraged (aka, high risk) investment purchase. If you purchased $400,000 worth of futures contracts using only $30,000 (leveraged), you would keep an eye out for the downside in that investment, right? Now imagine you can’t just sell those futures contracts in two minutes…. what if you couldn’t sell those contracts for six months despite that you want to get rid of them… think about what you are telling people and then… think again.

    Money is money is money, Who cares what the format is? Risk certainly does not care. Using the format to confuse people about the real risk is immoral, and manipulative, IMO.

  52. 52
    Sottocapo says:

    This is what I’m talking about in Kirkland. These new townhomes sold for around 900k about three years ago. I can’t find out what this sold for orginally or if it is bank-owned, but it just sold for 475k. I have no idea what a GSE is One-Eyed Man but I could see that 900k was off the wall for a glamorized box on very busy Market St.

    Here is another example. This house was originally listed at about 1.1 million, maybe even 1.2 in 2007. It finally sold for 794k in January. It is within walking distance of everything in downtown Kirkland and similar homes were flying off the shelves in 2005-06. Unfortunately, I still think the buyers paid too much. It is one of 5-6 homes squashed onto a crowded lot which all have two car garages but no visitor parking.

    I am no financial expert by any stretch of the imagination, I just consider myself a realist who pays attention. My spouse and I pay cash for cars and have no credit card debt. I remember the terror everyone was experiencing in 2008 when the financial crash was obvious to all. I don’t see that anything has changed except that people have been sedated by upbeat media stories. I still see anyone with any common sense deleveraging while they still can.

  53. 53
    Jonness says:

    I asked my lender–William Doom in Gig Harbor–what rates are at today. He always has the lowest rates, is extremely professional and knowledgeable, and offers the broadest types of loans of anybody I’ve come across (construction, rehab, conventional, etc).

    30-year fixed; 0 points; low fees – 4.875%
    15-year fixed; 0 points; low fees – 4.25%

    When I asked him about the recent rising rates, he replied, “We had a scare last week as it shot up to 5.125% it has since retraced and is now back down.”

    I was thinking a 5.125% 30-year fixed rate was actually quite low, but last time I asked it was 4.75%. It was relatively high I guess. I guess it’s nice to have the rate back to below 5. We as consumers have come to rely on low rates so we can pay extra high prices for the houses.

    I suggest that anybody who buy now lowball the heck out of already aggressively priced homes and don’t let up. Low rates and a tax credit are not enough. You need low rate, a tax credit, and a low price. It’s a buyer’s market, so if you plan on buying, use some muscle against the seller. Put him on the ropes.

  54. 54
    Sottocapo says:

    He really is called William Doom? Very Dickensian.

  55. 55
    Jonness says:

    By Sottocapo @ 32:

    I see the main issue as employment. No jobs=no ability to create new households. I cannot see any logical reason for house prices to stay at current prices.

    I completely agree. You can look at 100 different aspects of the economy, but the bottom line is without increased money in the consumers’ hands, house prices cannot rise. We either need higher wages, lower lending standards, more jobs, inflation to destroy the dollar, house prices to go back to their long-term historical relationship to incomes, or an old gray-haired white dude in the sky to send a lightening bolt that magically makes the millions of shadow foreclosures disappear.

    I think many people are misconceiving what is taking place. We are not v-ing down and getting ready to v back up. We are witnessing a fundamental reset of the economy. Until we have the same level of greed in the system along with the amount of money and credit available and pouring into real estate at the peak of the bubble, we cannot have prices that high again.

    The U.S. population grows at about 1% per year, so the GDP should be able to grow at that rate with nothing else taking place. That separates us from Japan as does the American consumer mentality vs the Japanese saver mentality. Therefore I don’t expect 15 years of extremely slow growth and contracting house prices. But 5 years of slow growth and flat to contracting house prices is not an unrealistic expectation.

    Each passing month brings further separation from the bubble mentality and more sanity to the buyer and sellers minds. Eventually, it will work itself out.

    BTW, William is anything but doom. I find a lot of times the names fit the people, but in this case, the name is the complete opposite of the person. This guy is a class act and a winner.

  56. 56
    Dr. Zhivago says:

    Don’t get too excited about owning property since there’ s an aggressive effort underway, worldwide, to get rid of indvidual private property ownership and the legal rights that go with owning private property (what most constitutions are based on).

    At the opening session of the Rio Earth Summit (1992) Maurice Strong, the United Nations Environment Program (UNEP) Secretary-General, bemoaned the world’s “explosive increase in Population” and warned “we have been the most successful species ever; we are now a species out of control. Population must be stabilized and rapidly.” His speech also stated that “current lifestyles and consumption patterns of the affluent middle class – involving high meat intake use of fossil fuels, appliances, home and work-place air-conditioning, and suburban housing – are not sustainable. A shift is necessary which will require a vast strengthening of the multilateral system, including the United Nations.”

    Sustainable Development, as outlined in Agenda 21 and the subsequent Earth Charter, is the driving force behind what Al Gore calls a “wrenching transformation” that society must endure to repair what he perceives as the damage of the 20th century’s Industrial Revolution. It is the same Industrial Revolution that gave us modern transportation, medicine, indoor plumbing, healthy drinking water, central heating, air conditioning, and electric light. Sustainable Development is not about environmental clean up of rivers, air and litter. It is an all-encompassing socialist scheme to combine social welfare programs with government control of private business, socialized medicine, national zoning controls of private property and restructuring of school curriculum which serves to indoctrinate children into politically correct group think.

    Immediately following the publication of Brundtland Commission report and the Earth Summit many governments swiftly enacted draconian legislation to empower the Sustainable Development doctrine. This followed a common formula of establishing regional or federal authorities that were given sweeping powers to control activities on private property. In Europe nearly every imaginable activity, no matter how benign, now requires and environmental impact assessment to be submitted to a committee which then imposes its own controls on the proposed activity. The UN regularly audits member countries and reports on their progress in implementing Agenda 21.

    The primary tools used by the UN to force governments to implement its Sustainable Development agenda have been The World Bank and the International Monetary Fund (IMF). The World Bank states that Sustainable Development is its “global strategic priority” and all government loans are tagged with the requirement to introduce approved environmental legislation and strict monitoring. Even if repayments are met these loans can be foreclosed if the environmental targets are not met within the required timeframe.

  57. 57
    Pegasus says:

    Jonness @55
    I agree that we are not v-ing back up. I think the next great taxpayer funded attempt to stabilize housing prices will be lower mortgage rates. Rates ultimately subsidized by the taxpayers. Mortgages at 2-3 percent. Think of all that debt that the public can take on with much lower rates. Coming soon to America(within 12 months).

  58. 58
    The_Dude_Abides says:

    RE: Chuck Ponzi @ 9

    Post of the year, so far? :)

  59. 59
    David Losh says:

    RE: Scotsman @ 46

    “There really is no way out that doesn’t eventually collapse the living standard of the U.S. and force it to rebuild from the foundation up.”

    Of course things will never be the same, thank goodness. As far as the National Debt, and entitlements, Obama has made great strides, even over the objections of the Republicans. The Republicans are ultimately the ones who want things to go back to the way they were.

    In my opinion there is a tax structure out there that will pay down the debt while increasing prosperity. The focus should be on small business rather than massive corporate structures. Once a company gets to a certain size it should be weaned off the government teat, and stand alone, or fail. I personally never want to hear, to big to fail, or government bail out.

    Protecting oil interests over seas, like what we are doing in Iraq, interfering with Iran, needs to stop, and let those markets sort themselves out. If there is an alternative it will only become main stream by government funding.

    The government is the problem. We continue to prop up dinosaur business models, and protect them world wide. Our financial markets are the perfect example. We, here in the United States, with all the resources that we have, can leverage, bankrupt, then leverage again. Once you export that model it doesn’t work. We have bankruptcy in our Constitution, how many other countries do?

    We need to innovate, and start over. What’s done is done, and there are new opportunities, Let’s just get on with it, and stop whining.

  60. 60
    One Eyed Man says:

    RE: Ira Sacharoff @ 48

    “graduate of Barnum and Bailey Clown College”

    Oh so its down to defaming my alma mater is it! I look at it this way, if GM had invented a sub-compact that could hold 25 passengers they would have had to go bankrupt would they.;-)

  61. 61
    shane says:

    Could you explain this please, not understanding this statement:

    “As far as the National Debt, and entitlements, Obama has made great strides, even over the objections of the Republicans.”

    The debt is skyrocketing, what great strides are you referring to?

  62. 62
    One Eyed Man says:

    RE: Scotsman @ 46

    “There really is no way out that doesn’t eventually collapse the living standard of the U.S. ”

    I agree. But mainly because if we continue to live in a global economy the value of our labor will normalize with that of other countries, and I’ pretty sure that’s substantially down. And our dependence on foreign natural resources like oil will have the same effect.

    But I also think that the US will surprise you. They’ll eventually fix the entitlement problem and the pension problem enough to get by. The same is true of infrastructure and probably even energy.

    Everyone says the politicians won’t do it, and they might be right. But then again in 1968 everyone would have said that there’s no way Nixon will pull out of Viet Nam.

  63. 63

    RE: shane @ 61

    The Bailout Bubble

    This false sense of more horrifying debt to our grandkids being the dawn before the repression ending is like saying borrowing 6-12 months of house payments from mom and dad to stop a foreclosure will stop it after they stop lending you house payments. Totally ludicrous. I try to be optimistic, but thinking debt is a cure to practically no American industrial base is ludicrous thinking.

  64. 64
    Scott Weitz says:

    RE: One Eyed Man @ 44

    Not everyone can predict the market because most don’t have the knowledge to how markets work. The bubble was easy to spot, yet most ignored it…educated, objective people saw the bubble…just ask Tim.

    “That’s what recoveries look like”

    So receovery looks like all time highs in Foreclosures, bankruptcies, govt debt, massive unemployment…..All after MASSIVE (and unsustainable) govt stimlus. We are Japan of the 90s (at best)….prices will continue to fall for a prolonged period based on are govt’s actions…don’t believe the ‘recovery hype’. When the stimulus wears off, and we wake up to the massive govt debt, higher taxes, and no improvment- things will be very ugly.

  65. 65
    Scotsman says:

    RE: One Eyed Man @ 62

    ” They’ll eventually fix the entitlement problem and the pension problem enough to get by.”

    “They” won’t fix it in any traditional sense- but you’re right that the situation will be resolved. Resolved is not the same as “fixed”- the math simple doesn’t have the room to maneuver. Because of our changing position in the world’s economy we simply won’t be able to grow fast enough to generate the funds needed. Entitlements will be cut, spending will be cut, pensions won’t be paid, infrastructure won’t be replaced as quickly as needed, but taxes will jump significantly. The net result will be severely restricted personal incomes and spending. I think we’ll be lucky to see growth in GDP of more than 2% annually over the next decade, a third of what’s needed to keep the illusion of stability/solvency alive.

  66. 66

    […] BS? I mean seriously guys, Suzanne reasearched this.In light of the current REALTOR-aided media panic blitz over today’s rising rates, I thought this portion was also pretty amusing:The time for […]

  67. 67
    johnnybigspenda says:

    RE: Scotsman @ 65

    What can America learn from Greece’s travails? Paul Krugman: “We need to steer clear of deflation, or even excessively low inflation… America’s public debt will be manageable if we eventually return to vigorous growth and moderate inflation. But if the tight-money people prevail, that won’t happen – and all bets will be off.”

  68. 68
    One Eyed Man says:

    RE: Scott Weitz @ 64

    “That’s what recoveries look like”

    Actually Scott, I said “That’s what recovery looks like” referring only to this recovery, because it will be ugly, slow and not like most other post recession recoveries.

  69. 69
    Scotsman says:

    RE: johnnybigspenda @ 67

    Krugman’s a comic now, not an economist.

    Here’s a fun fact- if (when) interest rates rise only 2% it will mean almost an extra $trillion dollars per year in cash interest expenses for the federal government, or almost a 30% increase in the total federal budget. (Or an extra $trillion per year in deficits since we don’t have the money to pay the interest at this point.)

    That 2% increase in market rates will happen long before the economy expands enough to generate the additional tax revenue needed to pay the additional interest expense. Oops!

  70. 70
    EconE says:

    So I guess the value of your exurban Maple Valley Mcmansion that you purchased during the bubble will go up up up?

  71. 71

    RE: Scotsman @ 65

    They’ll Fix It Alright

    If you’re in your 50s you’ll see about half the monthly benefits at retirement. If you’re in your 40s, about 1/4th, etc, etc….

  72. 72
    One Eyed Man says:

    RE: Scotsman @ 69

    13 trillion federal debt X 2% =/= 1 trillion

  73. 73
    Scotsman says:

    RE: One Eyed Man @ 72

    Ouch, you’re right. What I meant to say (before my brain temporarily left the planet) was that the TOTAL interest paid on the debt, at what would then be about 6% using the 10 year t-bill as a measure, would be about $1.0 trillion. Given the current projections with the debt growing at a $trillion+ per year we would soon enough exceed even that amount.

    But don’t worry, it’s all good. Something, perhaps even a magical unicorn or pink pony, will surely come along and make everything better. ;-)

  74. 74
    One Eyed Man says:

    RE: Scotsman @ 73

    You know I’ve always agreed with you that the debt load was a huge problem and getting worse. Our only disagreement on the debt was whether the Fed had a reasonable shot to monetize some and gin up enough inflation to limit the growth of the rest.

  75. 75
    One Eyed Man says:

    RE: EconE @ 70

    I’m not sure if that was directed to me EconE, but we bought our current house in 2003 so its probably still worth more than we paid. I thought prices were ready to peak in 2003 and expected a small drop in prices or an extended flat period like the early 1990’s. We bought the house because my wife still wanted to fulfill that dream house fantasy.

    The continuing growth of the bubble through 2007 was a surprise to me and I couldn’t understand it. I have to admit I though Bernanke would error on the side of monetizing too much debt and create inflation so up until about 6 months ago I thought we’d get substantial inflation (about 5%) starting in late 2010 or 2011 and that inflation would eventually bring prices back in line with fundamentals.

  76. 76
    David Losh says:

    In my opinion Obama has hit all the right buttons. The nuclear treaties, in particular, are what Reagan saw as the end result of his military build up. Right now we have a massive military. There is no country on earth that could go toe to toe with us, no country, even China. All the hype about how much China has spent means nothing when you have over a billion people to feed.

    Enough about that. The stimulus was paid out with the idea that money would be coming back, which it is. There were strings attached that no one who borrowed wants. Pay caps are a big deterrent to keeping the money. Speaking of caps, cap and trade will generate a new set of industries.

    As far as the entitlements, that is such an easy fix that it makes no sense to discuss it further. We are well on our way to making those entitlements main stream, but let’s not talk about that, it sounds too much like socialism.

    We can grow out of debt by solving global problems. It may be a while before we get back to the get rich quick schemes we have had, but there is honest work that needs to be done to fix the problems we have on the table.

    Win, lose, or draw, our economy will never be the same after Obama, it will be better.

  77. 77
    EconE says:

    RE: One Eyed Man @ 75

    Sell it and then tell me what it’s “worth”.

    Maple Valley will fare no better than any other exurb IMHO. Inflation will only make it worse. Who will want exurban jumbo McMansions?

    But hey…if the wife wanted her dream house…she’s got it!

  78. 78
    Joe Renter says:

    RE: Scotsman @ 46
    You hit the nail on the head. Greed and and corrupt institutions, also a factor. The next step is a total new economic model. Is sharing such a bad idea? How much do you need? Do you care about the future of this planet? If you do; one should be both an activist and free thinker. Fearlessness is a good attribute. Hope (not Obama’s sellout crap) helps too.

  79. 79
    Scotsman says:

    RE: David Losh @ 76

    David, I don’t if you really believe what you say, or if it’s just a highly perfected denial, but I’m willing to bet that you will end up very disappointed and/or disillusioned unless something changes.

  80. 80
    One Eyed Man says:

    RE: EconE @ 77

    You know the drill. It’s a long way to commute from here unless you can set your own hours or work from home. But the prices this far out are about 70% of what they would be on the Issaquah plateau so it wasn’t that expensive a house. If we sold it for what we have into it a buyer could go conventional with less than 20% down.

    And even if we decided to sell and had to take a haircut because home prices feel another 50% it wouldn’t significantly affect our life style. We’re old and more than a little boring, we don’t spend much, we don’t have any debt and we save over half our gross income.

  81. 81
    David Losh says:

    RE: Scotsman @ 79

    “I’m willing to bet that you will end up very disappointed and/or disillusioned unless something changes.”

    Change would be a good thing. Oil we can do without. It’s stupid to spend the amount of time, money, and energy defending something that has been around for less than a century, and will be gone in a century, or much sooner.

    Population growth is real. It is a real problem. We need water, food, shelter, and medical attention, for billions of people.

    You want an economy? That’s billions of people globally, millions in the United States, millions in Mexico, millions in Canada. This whole us versus them BS is a 1950s concept that is long dead. We’ll need a greater era of cooperation.

    To that end, it’s very simple, we will never survive a nuclear attack of any size. The atmosphere is severely degraded since Hiroshima. The idea we will defend ourselves with walls, and nuclear weapons is a fantasy.

    What Obama implemented today was the use of long range missiles. There is nothing nuclear about them. We have the capability to kill targets half way around the world. This week, warfare has changed for ever. We are, this week, the most feared nation on earth.

    Lastly, what I really like, is that the Obama administration has called out Israel, Iran, and Afghanistan, by disregarding their Presidents. This administration has gotten into shoving matches that are no more childish then the shoving these countries have done to us. While signing some meaningful warfare agreements with Russia, the United States has dismissed these smaller annoyances of countries that present nothing but problems for us.

    You talk a lot about how China may do something, or the deficit, or that we are headed down the wrong path, but the fact is you have to spend money, the right way, to make money.

    Bush’s deficit was a free ride for his buddies, this deficit is an investment in the future.

    The government has only defended itself against the very businesses that are demanding protection, help, and welfare from the tax payers. American business has run amok. The constant whining about regulations is just ridiculous. If you do good business, if you make fair profits, you can take your case to Congress. For gawd sakes the Kellman guy at redfin did it. How lame can you get?

    Come on, there is a lot to do. I wish I were 20 again in this, the time of the greatest financial opportunity that I’ve seen in my life.

  82. 82
    Mikal says:

    RE: Scotsman @ 79 – I can’t see how you aren’t with what Bush did. Claiming his tax cuts and expansion of the government hasn’t caused the deficit is way out in loonyville.

  83. 83
    Sottocapo says:

    Returning to Kary’s question @31, I do realize that broader economic analysis cannot be gleaned from anecdotes. However my central thought, Modus Operandi if you will, is that the game has completed changed and no one knows what the new rules are or will be. In the past I could make decisions based on previous scenario “If you work hard at school and college you should find a good job” for example. I think many people (most) were also operating from the concept that housing is generally a save investment and will appreciate over time. The MSM, government, financial sector did not discourage this thinking in the last ten years.

    My spouse and I followed the rules of sensible financial decisions and now our tax money is being used to rescue all the sectors that choose to speculate. All I know now is that the people who said that they were looking after my interests are still in positions of power and influence while millions of households are suffering. I think it is clear that I can’t trust the “common sense” financial planning concepts of the past or the MSM that is keeping these ideas alive. They are trying to tell me it’s business as usual, but I am not putting any money in the stock market or housing right now until I can be convinced that anyone has a clue as to where we are going economically as a nation. Any time congress could pass a law that throws all my carefully laid plans in the gutter. I have no idea what the new game is, what the new rules are and I don’t believe anyone else does either.

    So in the meantime I have The Capo and three kids at home and we are focussed on a few elements in life that we can do something positive about. We are making sure our kids get a decent education, that we all eat healthily and exercise. We enjoy times with friend and family, and our local community and we are learning to grow some of our own food. We know we can’t guarantee future employment despite being in healthcare so we are being careful and prudent with all our resources. With no house payment we are taking more vacations however and we keep saving like we always have.

    My sister-in-law and husband did buy a house recently. They sold theirs in CA in 2006 and were renting until they saw a bank-owned home they liked here in WA state. I think their 30 yr is at 4.5% or something. They bought a house with a MIL apartment. Those of us in midlife know that we are going to be caring for our boomer parents and we are preparing ourselves if we are able. This is another reason less households are being formed. If we buy a house again I would want a MIL apt and also the ability to have grown children at home if necessary. I see many of us returning to multi-generational households. I would also want the house to work well for me in retirement. So I don’t expect it will have any speculative element but instead would be “the house” that we buy, period. Like the Germans do (and most of them never buy). A house where we can stay (i.e. the family) for generations if necessary.

    We are already supporting a dearly beloved parent who bought and sold no less that 4 properties during the boom. She spent every penny of equity each time she traded up until she was just able to sell her last home for what she bought it for before prices collapsed. Despite terrible credit she just bought another house and already has CC debt. We “employ” her in a family business part-time. She came out of retirement because she needed the money. We try not to enable her but we don’t believe in letting our parents become destitute. When we buy her gifts it is gas and grocery cards.

    So money that would be going to another employee or saved for younger family members is being spent. Kinda reflective of the economy as a whole. And what about the two wars that we are paying for? No one seems much interested in them or the cost. We have family members serving and others who are putting the young vets medically together again when they come back from “down range”. It’s hard when you get calls from family members to help a young 22 yr old cousin who is suffering nightmares and PTSD. Those seem the only secure industries right now, warfare and healthcare.

  84. 84
    Jonness says:

    If that were always true Scott, we wouldn’t have bubbles. The fundamentals said Seattle was over valued after 2001 or 2002. If you predicted based upon fundamentals like price to income ratios, rent v. own statistics and gross rent multipliers, Seattle’s over exuberant demand for homes would have stopped around then.

    House values were up compared to incomes during that time, but you need to factor in mortgage rates, credit availability, and the amount of money flowing into MBS. Certainly, if you only look at part of the picture, fundamentals are meaningless. However, if you look at the big picture, then you can put the odds in your favor and make intelligent investments.

    When you see unemployed strawberry pickers getting million dollar loans for homes, it’s time to think again about limiting your analysis to a few factors that seemed to work 10 years ago.

    Many people foresaw the housing crash. The ones who didn’t have poor economic analytical skills. So poor in fact, that they believe with full conviction that it’s impossible to invest intelligently.

  85. 85

    […] was funny then, and it’s even more funny now, as rates hit yet another new all-time low, a year and a half […]

  86. 86

    […] pointed this out numerous times in the past, but it is worth repeating: Rates are still crazy […]

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