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Rising Rates Vs. The Housing Market

By Patrick follow Patrick   2018 May 15, 5:27pm 1,074 views   4 comments   watch   nsfw   quote   share    


Interest rates had been falling for most of the past three decades – but two years ago, they started climbing. The yield on the 10-year Treasury note recently climbed above 3%, up from less 1.5% just a couple of years ago.

Among the reasons that rising rates matter is that they have numerous effects on the housing market. Some of these effects are obvious. As interest rates climb, so will mortgage rates, making houses relatively less affordable. Refinancing also becomes less attractive.
1   anonymous   ignore (null)   2018 May 15, 5:28pm     ↓ dislike (0)   quote   flag        

But this time it's different. No NINJA loans!
2   AD   ignore (0)   2018 May 16, 9:21am     ↓ dislike (0)   quote   flag        

Patrick, when you buy a home, you are really buying a monthly payment.

Housing cost is defined as the monthly payment is principal+interest+property taxes+insurance+hoa fees+maintenance/repair costs (i.e., PITI + HOA + REPAIR). If you bought a home with a 3% fixed, 30 year mortgage with no points then a lot of equity is gained quickly. That is why I don't necessarily put a lot of emphasis on median housing price to median household annual gross income ratio, etc.

Now, going back to your interview on 20/20 or 60 Minutes about 12 years ago, remember it is about disposable income as as percentage of net income (i.e., wages, capital gains, dividends, royalties, investment property income, etc.). That defines a lot of quality of life in your San Fran Bay Area.

I'd love to read your future comments about taxes especially Californian sales and income taxes, as well as the cost of medical insurance. At any rate, when the median housing cost (i.e., monthly payment) is greater than 1/2 the median household monthly net income, then you have reached an unsustainable market condition. The market is too overvalued.

You'll know when the peak is reached. Sales prices will be greater than original asking prices for at least 65% to 70% of homes sold. And 1/2 of the mortgages for these sales involve interest-only mortgages just like the case back in 2005.

Roll Tide Roll, Patrick.
3   AD   ignore (0)   2018 May 16, 9:35am     ↓ dislike (0)   quote   flag        

The key is to accumulate equity and hope for at least a 1% average annual appreciation of the value of your home. Real estate closing costs are about 5.5% of the sales price of the home.

Then take that equity gained and buy in a lot cheaper real estate market. Look at the migration trends from California to Arizona, Nevada, and Colorado.
4   Tenpoundbass   ignore (15)   2018 May 16, 11:24am     ↓ dislike (0)   quote   flag        

adarmiento says
Patrick, when you buy a home, you are really buying a monthly payment.

My realtor and mortgage broker were frustrated with me in 2010 when I was house shopping. Even though they told me I qualified for a 350K to 400K mortgage I told them my maximum budget was 175K. I finally got a house for 160K. Zillow now says is worth 320K.
I've been doubling up payments the last 3 years and will be paid off in 2020.
I wished I started doubling my payments from the get go, I would be paid off by now.
The only reason I started doubling up my payments was because the Insurance company kept trying to raise my Premium for 3 years in a row. They would come at me and say they are doubling it because.... I would have spend money and replace and repair a bunch of crap. They would then raise it considerable but not double. After the 3rd year of being jerked around I realized as long as I held a Mortgage until 2040, they would be pushing my premium higher. Eventually making me replace all of my windows with storm windows, and putting a gabled roof on my flat roofs. I decided to spend that extra money now on making my Mortgage go away.

Guess what for the last three years I haven't heard a peep out of the insurance company. I guess I've showed them I'm paying it off and will drop them. They wont fuck with you, if they can't bully you.

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