It is my opinion that if the 30 year mortgage rates hit 6%, all bets on a recovery are off. If the market is anemic at best at the historic low martgage rates of 4.75% it is not going to move at all at 6%. We will go backwards, and real estate prices will fall more quickly, sales will drop and we are back to square 1! If there is any chance of recovery in this economy it will come from housing. Until the housing bubble exploded and the bubble burst... over 60% of GDP was driven by housing. That is no longer the case, and as a nation we are in pretty dire straights.
In my market I have seen a modest increase in some activity and sales are occurring again. The reason why the activity has only increased slightly is the fear that is in the market. Layoffs, rising unemployment, and rising gasoline prices are not a reason to rush out and take on new debt. The only reasoon there is any activitywhatsoever is that sellers are now willing to negotiate is because of lower mortgage rates.
With low mortgage rates all things are possible, even if the recovery is slow, it is possible. Builders that can unload their bloated inventory can more forward, homeowners that are over-leveraged will be allowed to rightsize, and buyers can afford to buy the home of their dream with a 30 year fixed payment! With lower lending costs...companies and corporations can refinance their finance terms and hiring could begin with an increase in cash flow. But that is all conditioned on rates staying low. However in the last week, movement has started pressuring the price of bonds...and they effect our rates. The rise in bond yeilds are a natural reaction to the government creating money that does not exist. So it pretty much inevitable....rates are about to start rising due to pressures in the free market, and the government will not be in a position to lower them. The rate rise is a direct result of free market pressures trying to correct an imbalance. The government interference in free markets has caused this dilemma.
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The good side of rising rates is that it may bring out some of the buyers that have been sitting on the sidelines waiting for the market to bottom.
First time buyers should be looking now rather than waiting to be closer to the end of November deadline to receive the $8,000 tax credit.
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So true, so true so true! Yesterday in the midst of the negative rally in the bond market, I had two buyers trying to lock into rates. When the banks refused to give them something positive, just because of the uncertainty they pulled out of the deals. Hopefully it will only be a temporary delay. If not, then it's going to be a long summer.
I also look at it as it gets the fence sitters off the fence, and there should be a buying frenzy. People will want to buy as rates go up so they can make sure to buy before they go up again. Just last November, rates were at 6.75% and the buyers were out in full force... at least in my market they were!
Roy Kelley (RE/MAX Realty Group) I agre, but that will be a one trick pony. They are not going to come back down for some time to come.
Ed Silva GRI, ABR, e-Pro Real Estate Agent (RE/MAX PARTNERS, LLC) I agree, but this time the cange is not a market fluctuation, it will be a long over due move upwards without looking back.
Donna Harris, REALTOR® & ASP - Austin, TX Real Estate (RE/MAX Austin Skyline) There were no buyers out in Atlanta in November...the numbers here were a total disaster. This rate move is more permanenet. This is the bottom in rates, and we are already moving in the other direction!
Is what I have been saying for a long time. How long is China going to buy our worthless dept. The Feds are printing and spending money like madmen.
History shows us that is a recipe for disaster. Interest rates are going to rise, a lot and soon.
Jim, everything I see and read seems to indicate that we have already seen the lows for interest rates; and the underlying causes for the increase aren't expected to change. While consumer confidence has risen slightly, it's still 20% below the past 10 year average, and the other negative indicators all point to no recovery this or next year.
It is inevitable that interest rates will go up, and that will slow down our already anemic economy. I heard the news yesterday that nationally 1 in 8 mortgages is late or in some stage of foreclosure. I find that almost unbelievable, and really disturbing. With unemployment rising at a steady rate, it's hard to see a light at the end of the tunnel anytime soon. Am I being a pessimist, or a realist?
Jim,
I strongly agree with the thrust of your post, but I would not be SO concerned about interest rates! Remember, interest rates change with and by market conditions, and some people who are on the fence waiting for the 'bottom' will be convinced to jump in to the market! No doubt, real estate drives the economy! Thanks, Fran
Jim, I'm also afraid that rates will shoot up. That's why I like FHA loans right now because they are assumable. Lock into a nice low 5% fixed rate and if rates shoot up when you need to sell, that assumable low rate is going to look really nice.
Hi Jim
This would not be the time to raise the mortgage interest rates.
Good luck and success.
Lou Ludwig
Hi Jim, I was talking with a lender today who told me that the rate has gone up in the past couple of days from 4.875 to 5.25 but that they may come back down. But I am hoping this will cause people to get off the fence.
Jim:
It is a sad place to be when what you think is good for you is really bad. Yes all this money borrowing has been pressuring rates up. Major sovereign countries are not as happy to buy our debt as they were in the boom days. I have been saying two things over and over again for the past few months. The over spending is going to cause high rates, and the credit tightening buy the lenders are causing pressure on the markets. The bank just don't really have funds like they did. There still is no scrutinizing. There is some money, but I don't think enough. The looses that the banks are taking on write downs are great and that is capital disappearing.
Richard
Norma Brandsberg (Marks Realty Co. Inc.) It is really interesting that in todays news the breaking story was the Fed intervened to buy more of these instruments. The rates should have been risen higher but they now should go lower.
Jon Budish (Remax Action Brokers) You are looking at it correctly. The comment of the Fed after their interaction today with the bond markets...was that the Federals Reserve had no interest in controling mortgage rates.
Fran 'The Title Man' Gaspari Title Insurance-PA & NJ (Patriot Land Transfer, Inc.) The problem is the rates are being purchsed down by the Fed. The markets are anything but normal.
Tim Maitski "Video Agent Guy" (HomeAtlanta.com) I strongle agree with you Tim! An attorney told me yesterday the only deals they are doing right now are FHA. He said no one has the extra cash.
Lou Ludwig CRB, CRS, CIPS, GRI, SRES, TRC, e-PRO, (Ludwig & Associates) Lou I agree!
Shirley Parks, North San Antonio TX Real Estate 210.414.0966 (Realty Executives Alamo) They will be coming down shortly, but it was due to a massive Fed buying today. An intervention of sorts.
Richard Stabile Bergen County New Homes Builder Realtor (REMAX real estate associates) Richard I do not know where all of this is going, but something is amiss.
I agree Jim...we'll be able to move more inventory overall with a lower rate sustained over a longer period of time. people may be hesitant to get in if they think they won't get the rate they want
Fort Wayne Homes for sale by Brian Kuhns (Coldwell Banker Roth Wehrly Graber) I agree Brian. The interestig thing is at these amazing low rates we are not inundated with buyer calls. We are not! If they move beyond 6% it will die.
Funny thing, Jim, I was going through my association list looking for links to see what some of my old friends are up, and I saw yours. It immediately occurred to me that perhaps you are having a rant over interest rates. And sure enough, I come here, and that's your blog. Kinda creepy, huh? But it's been on my mind, too.
Especially for short sale buyers who are unable to lock their loan until they get close to short sale approval. Some of these buyers based their buying decision on being able to secure a loan below 5%. Ain't gonna happen now. And not anytime in the near future, either. Oh, sure, they dipped slightly on Friday, but they're still above 5% and going up.
One buyer found himself staring at a GFE for 5.25% and when he went to lock, that GFE was now 5.75%. A half point might not seem like much to some buyers, but for others it's an astronomical jump for their monthly payments. That's not to say anything below 6% isn't still good, but people tend to get anxious when rates hike, regardless.
Elizabeth Weintraub, Sacramento Real Estate Broker, 916.233.6759 (Lyon Real Estate) Elizabeth, you brought up many great thoughts... On Friday it looked like a Federal intervention was going to drive rates backwards. The market seems to have other ideas. Also, several loan officers said as soon as the rates touched 5% the phones stopped ringing.
Jim this is true, "But that is all conditioned on rates staying low".
I don't think a lot of people understand that this housing depression still has obstacles to overcome. Not only is unemployment now a leading indicator of demand for real estate, but once we cross that bridge, higher mortgage rates are right around the corner. This storm still has a couple of years left to run its course.