Did anyone else notice that in the last few years, a common real estate advertising theme was, "if you wait until prices are better, mortgage rates will be higher so you'll lose"?
Mortgage rates fall across the board
September 5, 2008
"Rates on 30-year mortgages fell for a third straight week, dropping to the lowest level since mid-July. Freddie Mac reported that 30-year, fixed-rate mortgages dipped to 6.35 percent this week from 6.40 percent last week. It marked the third consecutive decline and left rates at the lowest level since July 17, when they stood at 6.26 percent".
11 comments:
I have heard that quite a bit and wonder just how true it is. Obviously if mortgage rates rise, then people can afford less how, which should in turn further negatively impact housing. However, is there a direct balanced impact (i.e., for every extra dollar paid in interest an equal percentage has to come off the house price)? I don't know. Also, could rates really go up above 10%, etc? Again, I don't know.
I would think that once home prices stabilize in the next 1-2 years, that rates would actually drop a bit.
Rates are still running about 3/4 pt higher now than in the gogo 2003-2005 years. Which is about $150/month on a 400k loan. Or looked at another way, you can now afford about 8% less for the same monthly payment.
On the other hand, the "spread" between 10 year treasury's and 30 fixed mortgages is historically huge, close to 300 basis points. If mortgages become perceived as less risky again and the 10 year interest rate remains the same we could expect mortgage rates to DECLINE about 1%.
I'm not entirely sure how big of a drop this is. If you look at the following graph, you will see that rates typically fall beginning in Sept-Oct until April and then they rise from April to Sept. It doesn't always follow this pattern, but a fall in rates now should be no surprise. This makes sense, the big home-buying period is in the summer, more demand for credit would enable creditors to demand higher rates. Sort of like you will generally find lower home prices in the winter vs. summer.
http://www.recharts.com/mr.html
I would always respond that I'd love to see rates go up to 10%, if it meant that home prices went down enough to compensate. You can always refinance when the rates go back down, but you can't refi away principal.
-Jason
You can always refinance when the rates go back down, but you can't refi away principal.
I see you haven't been reading the bailout news lately :-)
Breaking news: Fannie, Freddie under government control!
zerodown,
"Common shareholders interest: only diluted!!!"
My understanding is that with the share prices having fallen so much already, further dilution could mean the shares are practically worthless.
But the bailing out of preferred shareholders looks atrocious to me.
What is the rationale here?
zero:
NYT is reporting that both common and preferred will be reduced to "little or nothing." There is no way that taxpayers will absorb all potential losses while paying paying potential profits to common or preferred shareholders. I would hope that lower-rated or hybrid debt would also get slammed.
http://preview.tinyurl.com/55c7je
The Times described the plan as effectively a government bailout that could cost taxpayers tens of billions of dollars and would be among the largest rescues in U.S. history.
The Times and the Wall Street Journal said an announcement of a takeover could come this weekend.
Quoting unidentified sources, the Post said that the companies would be placed under a conservatorship and that the value of the companies' common stock would be diluted but not wiped out, while other securities, including preferred shares, would be protected by the government.
http://www.msnbc.msn.com/id/26567533
BTW, Calculated Risk has summarized the MBA's release of data concerning delinquencies and foreclosures. Short version: Prime ARM foreclosures are spiking, but only eight states comprise the bulk of foreclosures, and VA, MD, and DC aren't on the list. From the MBA:
For prime loans, foreclosure starts on fixed rate loans were 0.34 percent, an increase of five basis points, while prime ARM foreclosure starts were 1.82 percent, a 26 basis point increase. For subprime loans, fixed rate foreclosure starts increased 27 basis points to 2.07 percent and subprime ARM foreclosure starts increased 31 basis points to 6.63 percent.
* * * *
Only eight states had rates of foreclosure starts that were above the national average: Nevada, Florida, California, Arizona, Michigan, Rhode Island, Indiana, and Ohio. The remaining 42 states plus the District of Columbia were below the national average.
* * * *
[T]he increase in prime ARMs foreclosure starts was greater than the combined increase in fixed-rate and ARM subprime loans. Thus the foreclosure start numbers will likely be increasingly dominated increasingly by prime ARM loans.
http://preview.tinyurl.com/63wpl7
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