If home prices decline but mortgage rates keep rising

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davos8923
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If home prices decline but mortgage rates keep rising

Post by davos8923 » Mon Apr 16, 2018 9:30 am

I've been looking to buy a house but hesitant given how much home prices have skyrocketed in recent years. Article after article says homes are overvalued, could be in a bubble, and "shouldn't" rise as much as they have in recent years (i.e. home values only generally rise with inflation I believe).

Given I can afford to rent in the mean time (no rush to buy), I've thought it might be wise to wait this out a bit and see if prices pull back in the next 1-2 years. On the other hand, mortgage rates are rising and it makes me wonder if even if home values DO decline and I can get a better purchase price deal in future years, if any benefit will be offset (relative to just buying now) by the fact I'll be paying a much higher interest rate as more time goes on.

I realize this is a speculative question I guess, but just curious how I should think about this.

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dm200
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Re: If home prices decline but mortgage rates keep rising

Post by dm200 » Mon Apr 16, 2018 9:35 am

davos8923 wrote:
Mon Apr 16, 2018 9:30 am
I've been looking to buy a house but hesitant given how much home prices have skyrocketed in recent years. Article after article says homes are overvalued, could be in a bubble, and "shouldn't" rise as much as they have in recent years (i.e. home values only generally rise with inflation I believe).

Given I can afford to rent in the mean time (no rush to buy), I've thought it might be wise to wait this out a bit and see if prices pull back in the next 1-2 years. On the other hand, mortgage rates are rising and it makes me wonder if even if home values DO decline and I can get a better purchase price deal in future years, if any benefit will be offset (relative to just buying now) by the fact I'll be paying a much higher interest rate as more time goes on.

I realize this is a speculative question I guess, but just curious how I should think about this.
Who knows? We bought out house in 1978 and some folks said at the time - houses were overvalued. Now, 40 years later - house is worth 8-10 times what we paid.

BogleMelon
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Re: If home prices decline but mortgage rates keep rising

Post by BogleMelon » Mon Apr 16, 2018 9:53 am

davos8923 wrote:
Mon Apr 16, 2018 9:30 am

I realize this is a speculative question I guess, but just curious how I should think about this.
Think about this as follows:
- Do I really need to buy a home? (family size, more privacy really needed, have dogs,...etc)
- Can I afford to buy a home? (20% down available in addition to a decent emergency fund, positive cash flow after buying the home and paying PITI, on track with retirement saving...etc)
- Will buying home save me money on the long run? You can use RENT VS BUY NY Times Calculator to give you an idea.

If the answer is yes to these questions, you may pull the trigger, if no, then wait. Don't try to just time the market..

Good luck!
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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lthenderson
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Re: If home prices decline but mortgage rates keep rising

Post by lthenderson » Mon Apr 16, 2018 9:59 am

Ignore all the speculation. Buy a house for the right reasons and ignore what everyone says about the future and you will probably come out on top. I bought a house just a few years before the housing bubble collapsed the last time and sold it right before the markets really started back the other way. I got my money out of the house and didn't make a cent extra but I would do it again even knowing that information. The house suited my needs, I could afford it and it brought happiness in my life.

davos8923
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Re: If home prices decline but mortgage rates keep rising

Post by davos8923 » Mon Apr 16, 2018 10:00 am

BogleMelon wrote:
Mon Apr 16, 2018 9:53 am
davos8923 wrote:
Mon Apr 16, 2018 9:30 am

I realize this is a speculative question I guess, but just curious how I should think about this.
Think about this as follows:
- Do I really need to buy a home? (family size, more privacy really needed, have dogs,...etc)
- Can I afford to buy a home? (20% down available in addition to a decent emergency fund, positive cash flow after buying the home and paying PITI, on track with retirement saving...etc)
- Will buying home save me money on the long run? You can use RENT VS BUY NY Times Calculator to give you an idea.

If the answer is yes to these questions, you may pull the trigger, if no, then wait. Don't try to just time the market..

Good luck!
The answer is "yes" to all; it's just not something I need to urgently do. Hence my question regarding waiting out the market, but again, concerned it's not even worth waiting as far as affordability is concerned given rates are rising anyway. So thank you, I guess bottom line is I'm trying to time the market, which is sub-optimal.

adamthesmythe
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Re: If home prices decline but mortgage rates keep rising

Post by adamthesmythe » Mon Apr 16, 2018 10:17 am

But I read about strong demand in the rental market, even claims about a "crisis" in affordable housing.

Right now, the only force I see that would make house prices go down is wishful thinking on the part of those that want to buy.

I'm not saying I expect increases like we have seen recently. Just don't see the reason for a fall.

However that's this week, next week could be different.

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Watty
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Re: If home prices decline but mortgage rates keep rising

Post by Watty » Mon Apr 16, 2018 10:58 am

Be sure to play with the actual numbers.

For example for a 30 year loan;

$100,000 with a 4% mortgage has a payment of $477
$80,000 with a 6% mortgage has a payment of $480

These are not adjusted for inflation but even if you could predict the future it might not make as much difference as you might think if prices do decline as interest rates go up.
davos8923 wrote:
Mon Apr 16, 2018 9:30 am
(i.e. home values only generally rise with inflation I believe).
Bad assumption, not only do home prices sometimes go down a lot but over the very long term like 100 years or more the price appreciation of a specific house is something like negative 100% since the houses will get older and eventually be torn down. In extreme cases the cost of tearing the house down may be more than the value of the lot.

If you are 30 now and buy a 1960's house that is already 50 years old then you need to picture what that house will look like when you are 80 and the home is 100 years old. Even if you keep your house well maintained it will be in a neighborhood of homes that are the same age and the neighborhood could be problem.

As an example of this try to find the address of the houses where your parents or grandparents lived when they were kids to see how their old houses are doing if the house still exists.

This is not to say that housing is a bad investment, it is just that over the long term most of the value of it comes from the use of the the house or the income you get by renting it out.

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greg24
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Re: If home prices decline but mortgage rates keep rising

Post by greg24 » Mon Apr 16, 2018 11:04 am

adamthesmythe wrote:
Mon Apr 16, 2018 10:17 am
Right now, the only force I see that would make house prices go down is wishful thinking on the part of those that want to buy.
The equities market going down 30% would likely impact housing prices.

jminv
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Re: If home prices decline but mortgage rates keep rising

Post by jminv » Mon Apr 16, 2018 11:07 am

davos8923 wrote:
Mon Apr 16, 2018 9:30 am
On the other hand, mortgage rates are rising and it makes me wonder if even if home values DO decline and I can get a better purchase price deal in future years, if any benefit will be offset (relative to just buying now) by the fact I'll be paying a much higher interest rate as more time goes on.

I realize this is a speculative question I guess, but just curious how I should think about this.
If home values do decline signficantly it will likely be because the US is in a recession and during recessions, the fed acts to lower interest rates to stimulate the economy.

If you're not comfortable buying a home then continue renting, nothing wrong with that.

clutchied
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Re: If home prices decline but mortgage rates keep rising

Post by clutchied » Mon Apr 16, 2018 11:19 am

one of the things that has bothered me about low rates is you can't really do anything with them except buy.


If you have a higher rate and lower principal balance you can refi if rates go down. You can't refi your principal :) in the inverse situation.



I remember in 2005,6,7 being a new grad years before watching housing slip through my fingers... It was frustrating and then... things change.

I don't see that situation recurring but affordability is way down and weird things start happening when people can't buy houses.

Valuethinker
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Re: If home prices decline but mortgage rates keep rising

Post by Valuethinker » Mon Apr 16, 2018 11:24 am

davos8923 wrote:
Mon Apr 16, 2018 9:30 am
I've been looking to buy a house but hesitant given how much home prices have skyrocketed in recent years. Article after article says homes are overvalued, could be in a bubble, and "shouldn't" rise as much as they have in recent years (i.e. home values only generally rise with inflation I believe).

Given I can afford to rent in the mean time (no rush to buy), I've thought it might be wise to wait this out a bit and see if prices pull back in the next 1-2 years. On the other hand, mortgage rates are rising and it makes me wonder if even if home values DO decline and I can get a better purchase price deal in future years, if any benefit will be offset (relative to just buying now) by the fact I'll be paying a much higher interest rate as more time goes on.

I realize this is a speculative question I guess, but just curious how I should think about this.
Aim to buy a house that you will live in for 10+ years.

If you can do that, you can afford, generally, to ignore "noise". If you are not ready to make that commitment, it may be better to stay a renter.

If I had a family my bias would be towards "buy". If single, towards "rent". Marriage first, and kids even more, changes your priorities in life.

Although some US housing markets look like bubbles, overall the US does not seem to be in this position (as opposed to Canada and Australia, say).

It's hard to call the "hot" markets in the US-- San Francisco Bay area in particular, but I do note that there are real reasons for the boom there-- the tech industry is doing very well and paying people a lot of money (in cash + options). So it's hard to say if it is a bubble or just a roaring market, even at valuations that seem insane. And new supply is just not coming on due to zoning and other restrictions. Miami, say, sounds more out of control - the city's largest industry appears to be real estate development, and there's been a lot of foreign "hot money" which has come in from places like Venezuela.

Over to other places. The Crash and recession took out a lot of smaller contractors. There is an absolute shortage of many trades in the construction industry-- people left the industry, even left the country, in the downturn and have not been replaced. The big builders probably have even more market share, and they manage the release of new homes to maximize profits, not output. Bank financing for developers is not so readily available. Planning delays take ever longer it seems.

So you could easily see 10-20% corrections in some markets. But, conversely, prices could keep going up-- the economy is strong, unemployment is low. Americans in aggregate are not overborrowed, there does not seem to be the crazy behaviour (most places) that you saw in 2003-2006.

If we are talking south Florida (and a few other places) then I have some very specific views. We can't discuss that here, but please read Jeff Goodell's latest book before you take any decision to buy-- Amazon will tell you which is his latest. He spends quite a lot of time in Miami talking to politicians & developers.

The blog Calculated Risk is the best blog I know re US economics and specifically housing markets. I recommend getting comfortable with Bill McBride's writing. He called both the peak of the Bubble *and* the bottom of the slump.

delamer
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Re: If home prices decline but mortgage rates keep rising

Post by delamer » Mon Apr 16, 2018 11:29 am

clutchied wrote:
Mon Apr 16, 2018 11:19 am
one of the things that has bothered me about low rates is you can't really do anything with them except buy.


If you have a higher rate and lower principal balance you can refi if rates go down. You can't refi your principal :) in the inverse situation.



I remember in 2005,6,7 being a new grad years before watching housing slip through my fingers... It was frustrating and then... things change.

I don't see that situation recurring but affordability is way down and weird things start happening when people can't buy houses.
Important point above — the price that you paid for your home will never change. Interest rates probably will change; whether that is up or down over the course of the time that you own the home is unknown.

DesertDiva
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Re: If home prices decline but mortgage rates keep rising

Post by DesertDiva » Mon Apr 16, 2018 11:41 am

Great advice offered here - my only suggestions are to 1) know what your goals are and see where the house purchase fits into your plans, and 2) see what you might be able to afford with a 15-year mortgage instead of a 30-year.

adamthesmythe
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Re: If home prices decline but mortgage rates keep rising

Post by adamthesmythe » Mon Apr 16, 2018 12:08 pm

Watty wrote:
Mon Apr 16, 2018 10:58 am


Bad assumption, not only do home prices sometimes go down a lot but over the very long term like 100 years or more the price appreciation of a specific house is something like negative 100% since the houses will get older and eventually be torn down. In extreme cases the cost of tearing the house down may be more than the value of the lot.

If you are 30 now and buy a 1960's house that is already 50 years old then you need to picture what that house will look like when you are 80 and the home is 100 years old. Even if you keep your house well maintained it will be in a neighborhood of homes that are the same age and the neighborhood could be problem.

As an example of this try to find the address of the houses where your parents or grandparents lived when they were kids to see how their old houses are doing if the house still exists.

This is not to say that housing is a bad investment, it is just that over the long term most of the value of it comes from the use of the the house or the income you get by renting it out.
Not so, at least not as a general rule. In-city houses a hundred years old or more continue to increase in price, continue to be renovated, and continue to be lived in.

Valuethinker
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Re: If home prices decline but mortgage rates keep rising

Post by Valuethinker » Mon Apr 16, 2018 12:18 pm

adamthesmythe wrote:
Mon Apr 16, 2018 12:08 pm
Watty wrote:
Mon Apr 16, 2018 10:58 am


Bad assumption, not only do home prices sometimes go down a lot but over the very long term like 100 years or more the price appreciation of a specific house is something like negative 100% since the houses will get older and eventually be torn down. In extreme cases the cost of tearing the house down may be more than the value of the lot.

If you are 30 now and buy a 1960's house that is already 50 years old then you need to picture what that house will look like when you are 80 and the home is 100 years old. Even if you keep your house well maintained it will be in a neighborhood of homes that are the same age and the neighborhood could be problem.

As an example of this try to find the address of the houses where your parents or grandparents lived when they were kids to see how their old houses are doing if the house still exists.

This is not to say that housing is a bad investment, it is just that over the long term most of the value of it comes from the use of the the house or the income you get by renting it out.
Not so, at least not as a general rule. In-city houses a hundred years old or more continue to increase in price, continue to be renovated, and continue to be lived in.
That's not true in Detroit ;-).

Seriously, I am living in a 120+ year old home. They require a constant level of maintenance and periodically total renovation to stay valuable. A Victorian house which has not been renovated in 30 years is worth 20-40% less than a fully modernized one. The house structure that is: not the location.

Estimates of the decline in the value of a structure are around c. 1% pa (compounded) in real terms. That, at least, is what I recall Neil Monnery concluded in "Safe as Houses: 8 Centuries of housing prices" in particular the Paris chapter (800 years of data although not continuous). People significantly underestimate the costs of keeping their homes livable and desirable in the long run.

20 years ago in London it was all Victoriana - that's what the market wanted. Period features still count for something. But the number of houses where the interior walls (downstairs) are stripped out to give open plan room & kitchen, more interior light - that's definitely the style these days.. Also basements (cost c. £500 psf to build, but add up to £1500 psf to value) being dug out (the original homes generally did not have basements and certainly not usable ones)-- that's new and totally modern space.

Old homes are also horrendously energy inefficient (you should see my gas bills, in a "mild" climate ;-)). That's starting to become a significant issue and, inherently (due to solid walls) that's hard/ impossible to fix. So that's becoming another issue for the market.

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Pajamas
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Re: If home prices decline but mortgage rates keep rising

Post by Pajamas » Mon Apr 16, 2018 12:26 pm

Watty wrote:
Mon Apr 16, 2018 10:58 am


If you are 30 now and buy a 1960's house that is already 50 years old then you need to picture what that house will look like when you are 80 and the home is 100 years old. Even if you keep your house well maintained it will be in a neighborhood of homes that are the same age and the neighborhood could be problem.
Midcentury houses are very popular right now. If one is in good condition with original finishes and/or by a known architect, even better. In some areas, such as Palm Springs, they are arguably the most desirable houses on the market.

alfaspider
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Re: If home prices decline but mortgage rates keep rising

Post by alfaspider » Mon Apr 16, 2018 12:38 pm

Watty wrote:
Mon Apr 16, 2018 10:58 am

Bad assumption, not only do home prices sometimes go down a lot but over the very long term like 100 years or more the price appreciation of a specific house is something like negative 100% since the houses will get older and eventually be torn down. In extreme cases the cost of tearing the house down may be more than the value of the lot.

If you are 30 now and buy a 1960's house that is already 50 years old then you need to picture what that house will look like when you are 80 and the home is 100 years old. Even if you keep your house well maintained it will be in a neighborhood of homes that are the same age and the neighborhood could be problem.

As an example of this try to find the address of the houses where your parents or grandparents lived when they were kids to see how their old houses are doing if the house still exists.
A lot depends on the value of the land. For example, the land my house sits on is 70% of the total value. It could burn to the ground tomorrow and still be worth more than it was worth 10 years ago as a complete house.

How well the house was constructed and the architectural desirability plays a role too. My house is 75 years old, and such pre-war houses actually carry a premium in the local market- price per sq foot is actually higher than new construction and considerably higher than 20-year old construction in the neighborhood. The house my mother grew up in is worth double now than when it last sold 10 years ago because it is in a desirable area (former small town "downtown" that has been subsumed by a growing city). On the other hand, my grandparents grew up in Detroit, and I suspect their childhood houses did not fare so well.

That being said, I would not make that assumption for a house in a standard suburban subdivision where a single developer build 200 houses with one of 5-10 different floor plans within the last 20 years. Lot value tends to be lower in such neighborhoods relative to improvement value, and the uniformity of construction (along with prevalence of HOAs) make it less likely for the neighborhood to be updated with more modern homes or significant renovations as it ages.

mak1277
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Re: If home prices decline but mortgage rates keep rising

Post by mak1277 » Mon Apr 16, 2018 12:49 pm

davos8923 wrote:
Mon Apr 16, 2018 9:30 am
I've been looking to buy a house but hesitant given how much home prices have skyrocketed in recent years. Article after article says homes are overvalued, could be in a bubble, and "shouldn't" rise as much as they have in recent years (i.e. home values only generally rise with inflation I believe).

Given I can afford to rent in the mean time (no rush to buy), I've thought it might be wise to wait this out a bit and see if prices pull back in the next 1-2 years. On the other hand, mortgage rates are rising and it makes me wonder if even if home values DO decline and I can get a better purchase price deal in future years, if any benefit will be offset (relative to just buying now) by the fact I'll be paying a much higher interest rate as more time goes on.

I realize this is a speculative question I guess, but just curious how I should think about this.
Depends on how long your window is. I think the homebuilding industry would say the current strong market has 2-3 more years of growth.

davos8923
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Re: If home prices decline but mortgage rates keep rising

Post by davos8923 » Mon Apr 16, 2018 1:10 pm

delamer wrote:
Mon Apr 16, 2018 11:29 am
clutchied wrote:
Mon Apr 16, 2018 11:19 am
one of the things that has bothered me about low rates is you can't really do anything with them except buy.


If you have a higher rate and lower principal balance you can refi if rates go down. You can't refi your principal :) in the inverse situation.



I remember in 2005,6,7 being a new grad years before watching housing slip through my fingers... It was frustrating and then... things change.

I don't see that situation recurring but affordability is way down and weird things start happening when people can't buy houses.
Important point above — the price that you paid for your home will never change. Interest rates probably will change; whether that is up or down over the course of the time that you own the home is unknown.
It is a good point, and wouldn't this then mean to wait for prices to dip? And in doing so of course not caring that interest rates will rise in the meantime given they can always be refinanced.

jeroly
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Re: If home prices decline but mortgage rates keep rising

Post by jeroly » Mon Apr 16, 2018 1:14 pm

Valuethinker wrote:
Mon Apr 16, 2018 12:18 pm
adamthesmythe wrote:
Mon Apr 16, 2018 12:08 pm
Watty wrote:
Mon Apr 16, 2018 10:58 am


Bad assumption, not only do home prices sometimes go down a lot but over the very long term like 100 years or more the price appreciation of a specific house is something like negative 100% since the houses will get older and eventually be torn down. In extreme cases the cost of tearing the house down may be more than the value of the lot.

If you are 30 now and buy a 1960's house that is already 50 years old then you need to picture what that house will look like when you are 80 and the home is 100 years old. Even if you keep your house well maintained it will be in a neighborhood of homes that are the same age and the neighborhood could be problem.

As an example of this try to find the address of the houses where your parents or grandparents lived when they were kids to see how their old houses are doing if the house still exists.

This is not to say that housing is a bad investment, it is just that over the long term most of the value of it comes from the use of the the house or the income you get by renting it out.
Not so, at least not as a general rule. In-city houses a hundred years old or more continue to increase in price, continue to be renovated, and continue to be lived in.
That's not true in Detroit ;-).

Seriously, I am living in a 120+ year old home. They require a constant level of maintenance and periodically total renovation to stay valuable. A Victorian house which has not been renovated in 30 years is worth 20-40% less than a fully modernized one. The house structure that is: not the location.

Estimates of the decline in the value of a structure are around c. 1% pa (compounded) in real terms. That, at least, is what I recall Neil Monnery concluded in "Safe as Houses: 8 Centuries of housing prices" in particular the Paris chapter (800 years of data although not continuous). People significantly underestimate the costs of keeping their homes livable and desirable in the long run.

20 years ago in London it was all Victoriana - that's what the market wanted. Period features still count for something. But the number of houses where the interior walls (downstairs) are stripped out to give open plan room & kitchen, more interior light - that's definitely the style these days.. Also basements (cost c. £500 psf to build, but add up to £1500 psf to value) being dug out (the original homes generally did not have basements and certainly not usable ones)-- that's new and totally modern space.

Old homes are also horrendously energy inefficient (you should see my gas bills, in a "mild" climate ;-)). That's starting to become a significant issue and, inherently (due to solid walls) that's hard/ impossible to fix. So that's becoming another issue for the market.
In HCOL urban areas, most of the value in home prices comes from the value of the land. So, even if the house itself becomes completely worthless, you could conceivably still see price appreciation.

I've made lots of bucks in real estate (bought/sold primary residence for $213k/$701k, rental properties appreciated from $40k to$460k) so I'm not saying the following to dissuade you from buying a house... However,

1. Don't confuse needs with wants in housing. You may want one bedroom for each of your kids, but most kids even in the US grow up in shared bedrooms if they have a bedroom at all, and many of those wind up relatively normal :-). So if you decide you want a 5,000 sq. ft. house on three acres, don't look at it as an investment decision but rather like you'd evaluate a car purchase etc. - can you afford it? Would you rather have the things you'll be giving up to get it?

2. Over the long term, houses don't appreciate as quickly as stocks. Unlike stocks, though, you are able to buy them in a more leveraged fashion (e.g. 5% down vs. buying stocks on 50% margin) so if prices do rise you can see greater profit.

3. There are lots of hassles with home ownership that you don't get when you rent. For example, if anything breaks you have to fix it yourself or pay someone else to fix it.

4. Remember that transaction costs are MUCH higher than with stocks, bonds, etc., so typically you only want to consider purchase vs rent if you have more than a seven year horizon.

5. When assessing the investment side of a home purchase, remember that the housing market is very variable depending on local conditions. Columbus OH may be seeing falling prices at the same time that prices are rising in Orlando FL for example.

delamer
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Re: If home prices decline but mortgage rates keep rising

Post by delamer » Mon Apr 16, 2018 1:21 pm

davos8923 wrote:
Mon Apr 16, 2018 1:10 pm
delamer wrote:
Mon Apr 16, 2018 11:29 am
clutchied wrote:
Mon Apr 16, 2018 11:19 am
one of the things that has bothered me about low rates is you can't really do anything with them except buy.


If you have a higher rate and lower principal balance you can refi if rates go down. You can't refi your principal :) in the inverse situation.



I remember in 2005,6,7 being a new grad years before watching housing slip through my fingers... It was frustrating and then... things change.

I don't see that situation recurring but affordability is way down and weird things start happening when people can't buy houses.
Important point above — the price that you paid for your home will never change. Interest rates probably will change; whether that is up or down over the course of the time that you own the home is unknown.
It is a good point, and wouldn't this then mean to wait for prices to dip? And in doing so of course not caring that interest rates will rise in the meantime given they can always be refinanced.
In theory, the above works.

In practice, the problem is that you don’t know if, when, or how much prices will dip.

And you don’t know if interest rates will go down, up, and stay the same while you own the house.

ryman554
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Re: If home prices decline but mortgage rates keep rising

Post by ryman554 » Mon Apr 16, 2018 9:02 pm

Watty wrote:
Mon Apr 16, 2018 10:58 am
Be sure to play with the actual numbers.

For example for a 30 year loan;

$100,000 with a 4% mortgage has a payment of $477
$80,000 with a 6% mortgage has a payment of $480

These are not adjusted for inflation but even if you could predict the future it might not make as much difference as you might think if prices do decline as interest rates go up.
davos8923 wrote:
Mon Apr 16, 2018 9:30 am
(i.e. home values only generally rise with inflation I believe).
Bad assumption, not only do home prices sometimes go down a lot but over the very long term like 100 years or more the price appreciation of a specific house is something like negative 100% since the houses will get older and eventually be torn down. In extreme cases the cost of tearing the house down may be more than the value of the lot.

If you are 30 now and buy a 1960's house that is already 50 years old then you need to picture what that house will look like when you are 80 and the home is 100 years old. Even if you keep your house well maintained it will be in a neighborhood of homes that are the same age and the neighborhood could be problem.

As an example of this try to find the address of the houses where your parents or grandparents lived when they were kids to see how their old houses are doing if the house still exists.

This is not to say that housing is a bad investment, it is just that over the long term most of the value of it comes from the use of the the house or the income you get by renting it out.
Incorrect assumption on your part, too. Property values do not trend to 0 over 100 years, as the land still has value.

Look up 800k on a fire-destroyed house in Sunnyvale for sale. That's probably 900k for the land and -100k for the rest of the teardown.

If you buy in an area.folks want to live in tomorrow (good luck guessing) then you'll do ok.

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Re: If home prices decline but mortgage rates keep rising

Post by willthrill81 » Mon Apr 16, 2018 9:09 pm

Valuethinker wrote:
Mon Apr 16, 2018 11:24 am
Aim to buy a house that you will live in for 10+ years.

If you can do that, you can afford, generally, to ignore "noise". If you are not ready to make that commitment, it may be better to stay a renter.

If I had a family my bias would be towards "buy". If single, towards "rent". Marriage first, and kids even more, changes your priorities in life.
:thumbsup Good advice.

I might add that, based on the current numbers, if I was living in one of the top 100 largest cities (proper) in the U.S., I'd lean toward renting, especially if in one of the top 10, where renting and investing the difference seems to be preferable to buying. Otherwise, I'd own my home, especially since we have a small child.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

dustinst22
Posts: 84
Joined: Sun Apr 15, 2018 1:09 pm

Re: If home prices decline but mortgage rates keep rising

Post by dustinst22 » Mon Apr 16, 2018 9:53 pm


runner540
Posts: 658
Joined: Sun Feb 26, 2017 5:43 pm

Re: If home prices decline but mortgage rates keep rising

Post by runner540 » Mon Apr 16, 2018 10:52 pm

If mortgage rates rise, then you will be better positioned the more cash you have on hand, relative to other buyers heavily dependent on financing. Here is a good resource on a sophisiticated rent vs buy analysis for large metros in the US: https://business.fau.edu/departments/fi ... nd-graphs/

Dallas, Denver and Houston are clear "Rent". Read the methodology if you're interested in understanding the index, but it's far more than just price/rent.

The folks saying this time (or place) is different, and prices are going to keep rising 10% a year, are exhibiting classic speculative bubble symptoms. For the city that gets Amazon, that might be true for a few years, but if house prices double every 7 years (10% appreciation per year), then you quickly run out of owner-occupier buyers.

gr7070
Posts: 196
Joined: Fri Oct 28, 2011 10:39 am

Re: If home prices decline but mortgage rates keep rising

Post by gr7070 » Mon Apr 16, 2018 11:11 pm

Owning a home is a two-part question:
Can I reasonably afford it?
Will home ownership provide the lifestyle I want?

Ignore the other issues, except for those items that fit into these two questions.

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