Home buyers: Don't forget interest
OMG. I just threw up in my mouth a little bit. How much did the MLS pay What did MLS do to get Aubrey to write this crap.
edit: on second thought, my statement there was unfair. don't mean to imply anyone is on the take. but I still think it's crap
Home buyers: Don't forget interest
Mortgage rate increases can erase benefit of lower home prices
This is some bad math, I suspect. I would bet they are talking about a quarter point increase in interest rates offsetting a 2.5 percent price drop. Cutting interest rates by 0.25% applied to the overall rate saves you nothing.
To make this comparison fair, this change is equivalent at current rates (roughly 6.2% according to the article) to a 4% increase in interest rates (0.25/6.2). So a 4% increase in interest rates offsets a 2.5% decrease in prices. And of course, this ignores the fact that interest payments are tax deductible. Principle is not. This is some worthy spin, that may work on those who are just plain bad at math.
Perhaps I am just tired and reading it wrong.
edit: on second thought, my statement there was unfair. don't mean to imply anyone is on the take. but I still think it's crap
Home buyers: Don't forget interest
Mortgage rate increases can erase benefit of lower home prices
"I think more about looking at the price, because you can always refinance," she said.
But some local real estate professionals say buyers should be mindful of rates, which probably will rise in coming weeks, potentially wiping out any savings from lower home prices along with the chance to lock in historically low rates. Others say interest rates are even harder to predict than home prices so buyers shouldn't focus too much on short-term fluctuations.
Rates still historically low
Washington interest rates, which bottomed out below 5.5 percent for a 30-year fixed-rate loan in January, are now above 6.2 percent, according to Bankrate.com. That's still low by historical standards.
"The odds of getting a better (house) price might be a little bit stronger 30, 60 days from now, but if the rate goes up a quarter of a point you might be giving that back anyway," said Cliff Taylor, production manager for Windermere Mortgage.
Erik Hand, president of Response Mortgage Services, which is real estate company John L. Scott's mortgage branch, said an easy rule of thumb is to figure that a 0.25 percent increase in the interest rate offsets a 2.5 percent price drop.
This is some bad math, I suspect. I would bet they are talking about a quarter point increase in interest rates offsetting a 2.5 percent price drop. Cutting interest rates by 0.25% applied to the overall rate saves you nothing.
To make this comparison fair, this change is equivalent at current rates (roughly 6.2% according to the article) to a 4% increase in interest rates (0.25/6.2). So a 4% increase in interest rates offsets a 2.5% decrease in prices. And of course, this ignores the fact that interest payments are tax deductible. Principle is not. This is some worthy spin, that may work on those who are just plain bad at math.
Perhaps I am just tired and reading it wrong.
Comments
Well, the US public is their target audience.
THERE IS one more element to think about....In the spin it appears that they take the 30 yr. total interest paid vs the house savings...
Have any of you seen a 30 year period where the interest didn't fall so there is the refinance possibility.
Worse yet we only live in our home an average of 7 years before we move on...so at worse you only pay the higher interest for 7 years on average...and the lower price you got leaves room for far more appreciation when the market turns around.....
Wait until the market has run it course before you buy....Some realitors are so overwhelmed with the need to sell houses that they can be blinded to all the facts..
7 years? It's started to feel a lot more like 4 years is the norm...
Until you get too old to lift boxes at least.
I've been to the mall. I've seen 'em.
On a side note, I wonder what higher rates will do to prices?
Higher Rates will usually reduce sales....Unless there is big reductions in price...note: even at 6.3 to 6.5% the rates are not all that bad....when they hit 7% I think that is that is a turning point.
Why? We're not talking about some number people watch closely. It's not like "usage of gas will drop when it hits the psychological barrier of $3, $4, $5 a gallon". In that regard, it seems unlikely that going from 6.8% to 7% would change sales trends any more than a shift from 6.3% to 6.5%. Further, the switch to 7% is actually a smaller percentage change, so it should have less total impact on bottom-line prices.
I think that like the Stock Market there are levels that influence the individuals thinking ....The run up to 7% and then beyond 7% will drop off buyers if for no other reason then the added monthly cost will effect what they can buy..... But.....The price reduction that usually goes hand and hand with higher rates will probably influence the market...especially when it is already starting at a somewhat depressed level.
Bottom line is that if interest rates go up and prices remain the same sales will be depressed even further
The same way that rates moving above 6% drastically changed people's behavior?
The stock market is also an odd example of this phenomenon. While there are baselines or ceilings which are difficult to break, once they are broken it usually shifts the entire market. Also, these tend to not be nice round numbers.
My point is, interest rates operate in a continuum of real numbers and small changes at any two points aren't that different. The only caveat is if there is a psychological effect of certain rates. I just don't believe the average joe, or even the average buyer keeps their eyes on rates enough to expect much psychological impact. Now, crossing the 10% barrier would be news for a few reasons.
If interest rates move from 5 to & 7& that is a big move...Up 40%....
Gas has been moving up in small chunks....People have responded by reducing their driving whenever possible.....
When interest rates go up...sales go down....Unless Prices go down...You get one or the other.
We're arguing different things here. I contend if rates move from 6.0% to 6.2% the impact will be greater than if they move from 6.8% to 7.0%. You implied (or so I thought) that because people watch rates so closely they will respond to the psychological barrier more strongly even though the same 0.2% increase is a smaller percentage of the total rate.
Of course a change from 5%-7% would be significant. And of course buyers who can only afford payment X will require a price decrease whenever rates go up.
It becomes a bit of a perfect storm for disaster, which is what we have been seeing unfold slowly for the last two years, although it is ramping up.
And I am not even factoring in the high price of gas, the real estate collapse happening right now in virtually every other developed country, the ludicrous rush to economic slowdown to "save the planet" from the pure BS global warming scare and, well, I hope you have a really secure cave.
Naturally I exagerate, but I suspect not by much. Even I thought I was a little goofy when I said, back in spring of 2006, that this could be as bad or worse than the Great Depression. It doesn't look so goofy any more. That alone is very telling.
Uh...what?
I'm not going to argue that some of the diatribe regarding global warming is exaggerated (Al Gore, I'm looking at you), but it's extremely well documented that the climate is changing. It's also rather clear that human activity has played a role.
But you've connected the dots in a simplistic and dare I say Limbaugh sort of way. The fact is, our current rate of consumption is absolutely not sustainable. Oh sure, we can keep it up for 10 years. No problem. We can probably keep it up for 50 years without breaking too much of a sweat. But at some point the music stops and the everyone has to sit down. So rather than screwing over the next generation, why don't we do what we can now to make the world a better place for the next generation.
In case you didn't notice, we faced a similar dilemma in the 1970s. Pollution was out of control. Much of the freshwater in America was unsafe for watersports and such. Rivers were filled with pollutants and lakes were just disgusting. So, what did we do? We fixed it. You see, we've already done this once. Overall pollution is significantly better than it was 30 years ago. Greenhouse gases are quite probably the only pollution that is worst now (here, ignore China for a minute) than it was in the 70s. So let's do it again.
And don't forget that green energy will not cost us in the long run. Sure it's more expensive today, but if we transition a significant portion of our energy portfolio away from oil that's hundreds of billions of dollars a year that we will stop exporting!
I am puzzled, however, that a strictly GW thread got started in the "economics" forum and wasn't pulled. :?
As for moving your content. It's easy to edit a post you make, just go to it, and click edit. You can then just cut/past whatever you've done.