Reply to NVAR Economic Summit what if rates skyrocket?

My biggest fear is a 7% rate enviroment. Sure home price would fall but would still cost more per month! Lose/Lose

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[stinkypoon]

Frank, you are dead on. Yun KNOWS this is true, all economists there do. They don't want people to know that their mantra of "buy now, rates are low" is the ying to the "your house will lose another 30% in value" yang. This is why I don't care about buying when rates are low. I would rather buy at a much lower price at a higher rate with the chance of refinancing at a lower rate some time in the future. No chance of that when I buy at a rate so low I'll never see it again (or equity)

[FranklyRealty]

So IF you did buy today, would you buy with points. Point often are bad since people Refi, but if you get something at like 4.5%... would you get point?

[stinkypoon]

Considering that whatever I buy I intend to hold onto for a long time (it is a 30 year obligation), I would likely buy points. The key now is that if one cannot afford a 15 year loan, you have to start making additional principal payments on the 30 year loan. And NEVER do a 40 year loan. Equity can no longer be acquired by inflating home prices.

[stinkypoon]

Using a mortgage calculator, the monthly payment is about the same on 100k at 5% as is 75k at 8%. Hence, a 25% decrease in the public's purchasing ability, and 25% drop in values. Of course, that is excluding the people that can put a sizeable down payment on the house. All three of them... =)

[FranklyRealty]

I would think an increase to 8% would make prices drop a lot. But I don't think it would be a dollar for dollar drop. IE rates up 25%, therefore homes down 25%, I dont see that correlation. But it is possible.

[stinkypoon]

A change from 5% to 8% decreases the leveraged ability to buy by a factor of around 25%. No difference in pricing? That could amount to a 25% price drop!

[stevenangelilRealtor]

Hi Frank,

Yes, scary question of interest rates at 7-8%. At lunch today watching CNBC, world famous hedge fund manager Julian Robertson (who called the big recession in 2007) said today that if the Japanese and Chinese stop buying US Treasuries that interest rates could go to 15-20%! We would have to go brush up on late 70s/early 80's history in real estate if that happens!

To me, if mort. rates go to 7-8% slowly over the next 3-5 years I do not expect much difference in pricing.