Friday, December 25, 2009
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8 comments:
After hitting an all-time low in early December, the average rate on a 30-year, fixed-rate mortgage rose to 5.05 percent this week and could climb to 6 percent by the end of 2010, if not sooner, according to giant mortgage financier Freddie Mac.
so a 400,000 House, the payment rises $400/month. Assuming Incomes stay stable, this will induce an 8% reduction in house price to maintain a constant PITI.
when Bernanke flooded the market with cheap money all it did was force up prices temporarily, those who rushed in will now be as trapped as everyone else if rates rise 1 or 2 %.
I think the math works out to ~$250 a month extra on a $400k mortgage, unless I'm missing something.
I do agree with you that the risk of being trapped in a home should be accounted for in the price, but it seems that most of America aren't that smart and will sign anything for that "dream home." These are the people we're bidding against, and there's another sucker born every minute. Best you can do is save a good sized down payment so you won't be "trapped" and then hope you don't have to move right away when the rates go back up. At least by that point you will be selling AND buying in that market, so the price savings on your next home should offset your losses. Only those without enough equity will be trapped. Well, and those that aren't buying a different home because they lost their job or some medical problem or something.
MY MATH
400K house.
1% interest Delta adds 4K in annual interest.
divide by 12 and that's 350/month...
am i doing something wrong?
now what i did was i fooled around adjusting price to get a constant payment on a Price vs Interest rate curve.
i knew there was a multiplier, but
still.
I ran it through one of the many mortgage calculators on the net. I think your math is off because it uses simple interest for a constant loan amount rather than comparing the difference in payment for two loans paid off slowly over 30 years. The amount of interest you pay goes down over the years, but the monthly payment is calculated to be constant over that time.
Anyway, we should both just be happy that the most ridiculous of the liar loans are gone. It will be much less frustrating to bid on a home this year or next when your competition actually plans on paying off their bid amount too.
pat said..when Bernanke flooded the market with cheap money all it did was force up prices temporarily, those who rushed in will now be as trapped as everyone else if rates rise 1 or 2 %.
Uh, a lot of people refinanced at those rates. That's a big deal. Mission accomplished.
robert
the only people who refi'd
were the ones who were not underwater.
now if you bought in 2001 or earlier and didn't HELOC the place to death,
sure you are in great shape but for all the ones who are udnerwater?
If you bought before 95, it's okay, you can shorten your mortgage term, which will payoff big in a few years.
If you bought before 02, it's a decent return, but if you bought later? May not help
jeremy
in the first 5 years simple interest is accurate enough, if you want to do a more complex analysis you won't see much difference
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