Sunday, June 17, 2007

Interest Rates for Mortgages Rise Signifcantly

Interest rates on mortgages are up sharply in the past month. Other things being equal as interest rates rise prices will fall. Higher interest lowers what potential buyer's can afford to pay.
Responding to action in the bond market, lenders have pushed up interest rates on many types of loans, including the 30-year fixed variety that's favored by so many borrowers.

"Fixed mortgage rates have risen by more than half a percentage point in the last month," said Greg McBride, senior financial analyst at rate-tracker Bankrate.com.

For a person seeking a $300,000 fixed mortgage, a half-point hike adds about $100 to the monthly payment. (AZCentral June 17th)
The rising interest rates are just another hit to the already declining housing market

28 comments:

  1. Other things aren't equal - supply is way down.

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  2. David the problem is that sellers are still not lowering their prices significantly to match rising mortgage rates.

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  3. anyone know what happened recently with DC housing supply? It went from like 38,000 to 30,000 in like a week?

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  4. June 18, 2007
    Home Builder Index Lowest Since 1991: NAHB
    By REUTERS
    Filed at 1:14 p.m. ET

    NEW YORK (Reuters) - Sentiment among U.S. home builders slid in June to the lowest level in more than 16 years as tighter lender practices and rising mortgage rates crimped sales, the National Association of Home Builders said on Monday.

    The NAHB/Wells Fargo Housing Market index fell two points to 28 in June, the lowest since it hit 27 in February of 1991, the group said.

    Economists had predicted the index would be unchanged from May's 30 reading, based on a Reuters survey. Readings below 50 mean more builders view market conditions as poor rather than favorable.

    "It's clear that the crisis in the subprime sector has prompted tighter lending standards in much of the mortgage market, and interest rates on prime-quality home mortgages have moved up considerably during the past month along with long-term Treasury rates," said NAHB Chief Economist David Seiders.

    The NAHB expects home sales will erode "somewhat further," and improvement in housing starts is unlikely until early next year. Housing should be a drag on economic growth through the rest of this year, the group said.

    "Builders continue to report serious impacts of tighter lending standards on current home sales as well as cancellations, and they continue to trim prices and offer a variety of non-price incentives to work down sizable inventory positions," said NAHB President Brian Catalde, a home builder from El Segundo, California.

    Builder confidence has fallen every month since the index reached 39 in February, before defaults and foreclosures started escalating on loans to borrowers with blemished credit.

    A year ago in June the index stood at 42, versus this month's 28.

    Long-term interest rates have shot up in the past few weeks as hopes of the Federal Reserve cutting rates has faded.

    Inflation worries helped spur the biggest weekly spike in mortgage rates in three years last week, sending average 30-year loans to 6.74 percent, the highest in nearly a year, according to U.S. home funding company Freddie Mac.

    All three of the NAHB's component indexes fell in June, as they did the previous three months.

    The gauge of current single-family homes sales dropped to 29 from 31, the group said. The index of sales expected in the next six months fell to 39 from 41 and the prospective buyer traffic measure declined to 21 from 22.

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  5. To comment on options on the "Spring is a bust" Post below. If you rent from Lance, or another single homeowner, apparently he has "Whims". This is not acceptable and you should move to professional housing. Virginia allows a home owner to rent out a house and only requires a common law contract, where the renter can sign away thier rights. Then you are thier "bitch" and must conform to thier whims. So do not rent from an individual unless you have YOUR lawyer look over the contract and you make the owner YOUR "bitch".

    Any landlord who has over 5 units must confrom to Virginia rental laws (VRTLA) which will protect the renter from anything ridiculous.

    JOhn

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  6. Housingtracker.net just posted its numbers for the week and, miraculously, inventory jumped 11%, and prices fell 1%. Either the crash just turned into a freefall, or something is up with Housingtracker's numbers.

    Oh, wait, y'all said that you can't blame the data if it doesn't support your opinion. So I guess we are in freefall.

    Anyone who was touting Housingtracker as gospel last week care to chime in? If it was a sign that the market was stablizing or even rebouding because inventory had fallen by 18.5% YOY, how bad is a ONE WEEK BLOATING OF 11%?

    Apologies can be sent to foad@ohhailprofessorcaveatemptor.com

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  7. DC housing supply went down from 38,000 to 30,000 in one week! 8,000 units were sold in one week!!! Where is that information published? That sounds crazy!

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  8. The New York Times has an article here titled When Does a Housing Slump Become a Bust? In part it says:

    "As experts debate whether we’re headed for a housing bust, you’d think that we should at least be able to define it. The problem is that economists haven’t agreed on a definition. In part, that’s because severe declines in housing prices tend to be rare events, not a common subject for discussion. The last really big decline in national housing prices occurred more than 70 years ago, during the Great Depression....

    "Two economists with the Federal Deposit Insurance Corporation, Cynthia Angell and Norman Williams, have studied housing cycles since 1978 and have come up with a definition of a housing bust. In a paper published in February 2005, they called it a decline of at least 15 percent in nominal prices, meaning not adjusted for inflation. While economists tend to focus on real prices over time, the authors argue that in housing, nominal prices are a better measure of distress because homeowners, rarely think in inflation-adjusted terms in assessing market conditions.

    "Other economists, however, argue that 15 percent may be too restrictive a definition. Mark Zandi, chief economist of Moody’s Economy.com, says a better one would be a decline of 10 percent or more from peak to trough. 'When you see a decline in home prices of 10 percent, you get significant credit problems and it’s enough to wipe out equity in most cases,' he said.

    "Mr. Zandi also said that once prices have dropped 10 percent, there tends to be a self-reinforcing downward cycle. If borrowers can’t afford their mortgages and banks foreclose, their homes are generally sold at significant discounts to the market. That creates an added drag on overall prices, resulting in greater numbers of foreclosures, followed by even greater price slides."


    I think a 10% nominal decline from the peak is not enough to be considered a bust because the peak is reached for just a very short period of time. Most home buyers have bought well below the peak.

    According to the S&P/Case-Shiller HPI, the Washington DC metro area is already down 5.6% from the peak in nominal terms.

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  9. Inventory is down slightly off historic highs set last year, but sales in the DC metro area are down even more.

    http://www.housingtracker.net/askingprices/DC/Washington-Arlington-Alexandria/

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  10. Looks like inventory is down 12.6 percent year over year. Ouch!

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  11. Housing tracker is wrong. 8,000 units weren't moved in a week. If you think that makes sense, then your opinion is immediately discardable.

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  12. 04/16/2007 32,080
    04/23/2007 33,488
    04/30/2007 34,260
    05/07/2007 34,845
    05/14/2007 35,919
    05/21/2007 36,851
    05/28/2007 37,875
    6/04/2007 38,310
    06/11/2007 30,280
    06/18/2007 33,671


    That could not possibly be more anomalous. You may be fooled, but then, you probably bought at the peak of the bubble. heh.

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  13. http://www.housingtracker.net/askingprices/DC/Washington-Arlington-Alexandria/

    on housing tracker, but now apparently 3,500 of them are back on the market?? what the heck is housingtracker talking about?

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  14. Anonymous said...
    Other things aren't equal - supply is way down.

    Way down? It’s up 11% since last week.

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  15. There is something wrong with housingtracker...that much should be obvious to anyone with some critical thinking skills.

    It isn't clear what happened, but 8000 houses don't simply disappear from the market in the middle of the month for no reason.

    We have sales data available, and nothing indicates that there has been a surge in sales. It also makes no sense that that many homes would be pulled from the market in a single week.

    Additionally, the virginia MLS site's data has not shown a similar sharp decline, suggesting again that something is wrong with housingtracker.com's data.

    I advise everyone to ignore housingtracker until the odd behavior is explained. (This includes both those talking about an 8000 house decrease and those talking about a sudden 3000 house increase.)

    There is obviously something funny going on.

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  16. dc didn't come close to having the highest foreclosures though...
    maybe it isn't as bad as you all would like it to be?

    http://money.cnn.com/2007/06/18/real_estate/foreclosures_hardest_hit_zips/index.htm?cnn=yes

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  17. That could not possibly be more anomalous. You may be fooled, but then, you probably bought at the peak of the bubble. heh.

    It is an odd timed abnormality. I assume everyone saw that builders have decided to continue to pull permits at 125% of the absorption rate. The WSJ (sorry, read dead tree) last week noted on how building homes is the only way builders can sell land...

    As to the topic, interest rates are going up. As someone sitting on a large down payment, that can only help me. Besides, monthly payments far exceed what most buyers can sustain.

    Since the cost of buying vs. renting remains incredibly out of whack and no one is predicting a return to high appreciation... my spreadsheet model tells me to keep renting. Right now it says I'll come out ahead $400k at retirement. :) (Includes all the tax benefits and costs.)

    The home builder index at 28 is interesting... yet they keep building.

    Also, supply should be in months of inventory... that's going way up. :) Where I want to buy its at 8.3 months... so close to that 8.7 month correlation that triggers fast price drops (until inventory drops below ~4 or 5 months).

    Got popcorn?
    Neil

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  18. 6.74% 30 year fixed conforming.

    My approx. $200k mortgage at 5 5/8% with no points costs me about:
    $1,151 per month (not including taxes and insurance)

    At 6.75% the same mortgage is:
    $1,297 per month

    A difference of: $146 per month.

    Anybody wishing they had locked in a 30 year at 5.625%?

    I'm guessing all those people with $400k mortgages that they usede ARMs for are really wishing that they had locked in at that rate. It would be saving them about $300 per month.

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  19. One possiblity is that a huge number of spring listings expired. If sellers put something on the market in late February or early March then the contracts may have expired.

    Another possibility is that the tracking area changed.

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  20. dc didn't come close to having the highest foreclosures though...
    maybe it isn't as bad as you all would like it to be?


    I agree, so far DC has not been hit as hard as some places. It's still to early to celebrate though, a lot more still has to happen before this bust is over. Interest rates are rising, alt-a is just beginning to be affected, with prime loans still ahead. Stay tuned...

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  21. wannabuy said...
    "The home builder index at 28 is interesting... yet they keep building."

    The really interesting thing is that permits are up even though the builder index is at a new multi-year low. Building permits are a leading indicator.

    "Also, supply should be in months of inventory... that's going way up."

    High months of inventory suggests that the equilibrium price for real estate is below the market price. The lower equilibrium price should continue to pull market prices lower.

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  22. james said . . .
    "The really interesting thing is that permits are up even though the builder index is at a new multi-year low. Building permits are a leading indicator."

    BZZZZ. WRONG ANSWER

    Ah yes hope springs eternal, and the MSM puts on the spin again. MSM pulled the same stuff 2 years ago with housing sales. Sales were up x% they say. Yes up x% MOM but DOWN 2x% YOY.

    Housing permits for SFH DOWN 27.7% YOY . . . oh and Down 1.8% MOM. That's a lot. Privately-owned housing units up 3.0% from April but DOWN 21.7% from May. Taken right from the Construction Report at http://www.census.gov/const/newresconst.pdf

    You might want to look at
    http://bp2.blogger.com/_ym8Q9yxUg34/RnfqMjtrQdI/AAAAAAAAAL8/HS-mBFU1260/s1600-h/permitsstartscomps0507.JPG
    it gives you a really good idea as why MOM it's up and YOY it's down . . . it's called seasonality.

    Again the MSM is pushing their own agenda and not reporting accurately. Geez . . . I found this info. out in 5 min. of research. You'd think with all their resources they would have noticed it to. No I think they did notice it but only reported what they wanted.

    It's called psychology. Even though it's going to crap . . . let's make the little people feel like it's not that bad. Instead of Baghdad Bob we've got Baghdad MSM.

    So no housing permits are not up . . in fact they tell you the exact opposite of what MSM wants you to believe. Come on YOY down 27.1!! . . and they report it's up (and then it's only 3% MOM. Blatant dishonestly

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  23. June is a huge month for expirations.

    Many listings are already re-listed, though, as the numbers show. Sellers who were "not going to give it away" will likely just think ahead fondly to next Spring.

    I won't be surprised to see inventory dwindle from about now until early next year, with the exception of foreclosure inventory. The rate of sales is still the key, however. And Fairfax County is running about 6 months (slow but not impossible to sell), while Prince William County is about 12 months.

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  24. Re:

    "Housing permits for SFH DOWN 27.7% YOY . . . oh and Down 1.8% MOM. That's a lot. Privately-owned housing units up 3.0% from April but DOWN 21.7% from May.

    A further look behind the numbers is also revealing:

    From today's WSJ, page A2:

    Building permits overall increased 3% in May, but single-family home permits fell 1.8%, while permits for apartments gained 17%.

    The slowdown in building activity, coupled with reports of rising foreclosures and declining confidence among builders, could mean the tumbling housing market has yet to hit a trough.

    "Things aren't going to get better anytime soon," said Drew Matus, senior U.S. economist at Lehman Brothers.


    How is that for a leading indicator? It seems that builders, being rational, are going to build what they beleive the market wants, which is apartment rental units because, I assume, they expect more people to rent in the years to come rather than buy.

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  25. What is the advantage of prices dropping and interest rates climbing at a higher rate? The house will cost you, in mortgage payments, the same or more.

    This presumes that you are not buying a condo or moving to Woodbridge or Manassas. Pick your poison.

    Maybe you'll come out OK. Not really any decrease in the cost of ownership in my opinion. Best to keep renting for the next 10 yrs. I wouldn't put my money in the stock market, however. If everything goes to hell, cash will be king.

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  26. the fact that housing permits are down so much seems to me to be a great thing given the inventory. it shows how quickly the builders can adjust to market conditions - so supply will come down to demand and keep prices stable.

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  27. Anonymous said...
    “the fact that housing permits are down so much seems to me to be a great thing given the inventory. it shows how quickly the builders can adjust to market conditions - so supply will come down to demand and keep prices stable.”

    Hold on a sec anon. Builders still have homes in the pipe. It’s not some spigot that can be readily turned off. There are developments still under construction, with spec homes, that need to be finished out. Unless these builders fold outright, these spec homes will still be built.

    Housing permits are a tale tell of builder speculation. It’ll be quite some time before sellers feel reduced pressure from the builders.

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