Feds raise US interest rates again

[jnevin]

so wait, are prices going up, down or neither because of this?

Neither. Prices go up because of demand. These rates don't directly affect mortgage rates.

 

[SoreArms]

but don't higher interest rates mean less people willing to take on loans, affecting the number of people willing to take a loan to buy a house?

 

[DieselGunz]

talked to my girl and the intrest rates on 30 year fixed increased from 5.87% to about 6.00%.

There are other programs but this is a "vanilla" fixed rate

 

[jnevin]

but don't higher interest rates mean less people willing to take on loans, affecting the number of people willing to take a loan to buy a house?

Higher interest rates are supposed to mean there's more money to be spent.
And rates change from one day to the next. There can be multiple price changes in any given day.

 

[Whiskey]

A neighbor of mine was bitching, she just put her $80,000 house on the market for $106,000 thinking that for shure she'd get a buyer. no way, not now. especially in my small town. It is about 2500 sq. ft. though

Whiskey

 

[Tadow]

Rates do not directly effect prices. However, under current economic understanding, raising the prime rate should lower demand for housing, thus LOWERING home prices.

This is what Greenspan has been trying to accomplish for a few years now. Raise the fed funds rate, driving up the cost structure for commercial banks. Banks pass this on in the form of higher interest rates. This raises the cost of investment to companies and individual investors, in turn decreasing investment. Less individuals looking to invest is represented by a decrease in the demand for housing (a shift downward or to the left for those familiar with a basic Supply and Demand graph). This results in a lower price.

Greenspan, and anyone with any sense, knows that there is a bubble in the housing market. He doesn't want to retire having left a bubble about to pop on his watch. So for years now he has been trying to control housing prices by upping the fed funds rate. It sure isn't fear of inflation that's been driving it up.

What he and many others can't figure out is why it hasn't been working. And personally, I am holding off on buying a home because the last thing I want to be sitting on is a 300K house with a 750K mortgage. And in So. Cal, I believe that the bubble is large enough that those numbers could end up in reality.

 

[MattTheSkywalker]

What he and many others can't figure out is why it hasn't been working. And personally, I am holding off on buying a home because the last thing I want to be sitting on is a 300K house with a 750K mortgage. And in So. Cal, I believe that the bubble is large enough that those numbers could end up in reality.

The extended lower rates have enabled the lending industry to get more creative. 15 year ago, interest only mortgages were virtually non-existent.

Now all kinds of people have them.

Same with adjustables...much more common these days.

This "creative financing" makes it possible for people to buy "more house" than they otherwise would have and prolongs / raises the bubble.

When the inevitable correction happens, cash buyers will do well. So Cal will get hit very hard.

 

[MattTheSkywalker]

Neither. Prices go up because of demand. These rates don't directly affect mortgage rates.

Sure they don't.

But when more people put their houses on the market looking to "cash out" and fewer people can afford them due to higher rates....well, you see where this is going.

 

[gonelifting]

"What he and many others can't figure out is why it hasn't been working."

In part due to the creative financing people are doing. They don't care HOW they do it, they just WANT to BUY the house and they are doing it.

Interest only.... adjustable.... No/low money down... We've become gamblers, we are a greedy people. Remember the stock market bubble? Of course.

 

[Tadow]

The extended lower rates have enabled the lending industry to get more creative. 15 year ago, interest only mortgages were virtually non-existent.

Now all kinds of people have them.

Same with adjustables...much more common these days.

This "creative financing" makes it possible for people to buy "more house" than they otherwise would have and prolongs / raises the bubble.

When the inevitable correction happens, cash buyers will do well. So Cal will get hit very hard.

Yup - this is what I've been telling the people I know for a long time now. Unfortunately those people don't want to listen to the guy with the econ degree.

So Cal is gonna get hammered. More because of the amount of families and investors here that have purchased multiple homes, getting in on the insanity that has been the housing market. As soon as the bubble starts to weaken, it's gonna be a double whammy. Not only are we going to see a decrease in demand as all these investors stop buying up real estate, but I believe they also are going to start selling off the real estate they already own like it's going out of style. That means a decrease in demand coupled with an increase in supply, and prices are going to hit the floor.

You know who gets screwed there? The family that streched themselves thin to get a house at an outrageous price. It's kind of sad actually.

Of course, this all presumes that the bubble will burst. But when even the Fed can't put a calming hand on the market, I don't see any other probable outcome.