A Jump in the 30-Year Fixed Rate

funny the NY RE market now reminds me of the financial market last year same time. Bear Stern was rescued and people thought that the bottom was behind the mirror. of course those jumped in were killed three months after in september. i call those people who say it is bottom now. we WILL see another shoe drop in september for 20% more cut. then by the year-end, it will be flatening. RE is not magical, it lags equity market for one year. remember japan has a 20 years bear/flat real estate market. same as us, they printed money and have zero rate and stimulate etc... bubble is bubble and it is difficult to sustain. california or nevava is done after 60% drop. new york? not so!

I am glad someone is finally talking about mortgage rate jump-up. I was about to seal the deal for a one bedroom apt I have been considering for a while. Of course, I calculated my monthly carrying cost based on 5% fixed 30 yr. Now I am not sure about this deal anymore.
Honestly, I was one of those people who thought the bottom was here. I just didn't think of the mortgage rate going up when we are still in the midst of one of the worst recession. But now it is happening, I have to say "bottom is here" theory might be over.

I just spoke with people I know who are in investment and financial advising. They all said "if the interest rate goes up, then the housing price must come down to balance it out". Well, I sure hope so.

and what convinced that the bottom was here?

The 10 year have topped out in the May/June time frame over the past 3 years....

http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=tnx&time=12&freq=2

Might see it again this year.

hmmmmm something happened in the last three years?... hmmmmm what could it be? What happened in the last three years that could affect the 10yrs seasonality..... hmmmmm.... oh where oh where did I hear of something that could affect IR?

When the rates that banks are charged for funds stays the same or goes lower, but they raise the rates for long terms loans, it's pretty f'ing clear what the BANKS think is going to happen.

"The 10 year have topped out in the May/June time frame over the past 3 years...."

Your not serious, right....tell me this what happens when:

1) Russia and company continue to dump their Treasuries
2) The next "awful" auction comes up
3) Inflation rears its head
4) The $ gets crushed
5) HR 1207 is passed
6) The Fed stops buying Treasuries, thus artificially manipulating the price

Yeah...just like the last 3 years

Your not serious, right....tell me this what happens when:

1) Russia and company continue to dump their Treasuries
2) The next "awful" auction comes up
3) Inflation rears its head
4) The $ gets crushed
5) HR 1207 is passed
6) The Fed stops buying Treasuries, thus artificially manipulating the price

this goes beyond day trading comprehension.

I guess I believed that the bottom was here because everyone started buying. I have been looking since last summer, in a specific neighborhood, and I saw probably every single apartment in my price range I was remotely interested (maybe 100+). Almost all the decent ones were either sold or went into contract by last month. But of course, that has nothing to do with the US economy and what is happening all over the world. In NYC, last few months of sales moving so fast made a lot of the potential buyers think "bottom is here". I know, it is all in the mood and nothing concrete.

This is one of the (many) other real estate shoes to drop. This rampant price increase was also due to the lowest interest rates in a long time. If rates go up to high single, let alone into double digits, affordability will go out the window.

Oh yeah...all those resets, even the ones that already reset (ARMs can reset yearly), will begin ticking up as rates increase.

We're not done. Nowhere close. Too much appreciation (even at today's rates), too much inventory, too few jobs, no more cheap loans, no more speculation, etc. are gonna continue to strangle this market.

Just my humble opinion.

*rates should be "prices"

"Almost all the decent ones were either sold or went into contract by last month."

roughly how many out of the hundred are we talking about here? are you exaggerating when you say that you saw 100? at 4 per weekend, that would be six months.

I'm dead serious.
Bond yield topped in May/June the last 3 years, and how it got there is beyond your comprehension.

what the hell is your point?

Here is the report from Bankrate.com: http://www.bankrate.com/finance/mortgages/mortgage-analysis.aspx.

We've shifted from consumer borrowing to government borrowing. It is quite evident that the fixed income people see inflation on the horizon. I think it's interesting that Bankrate.com notes in the article that think rates will fall, but not into the range that we had at 4.8% - 5% range.

This definitely effects the affordability for many potential buyers, esp. in NYC. We'll see in the next few months whether this has a substantial effect on home purchases, or perhaps prices have dropped significantly enough in many markets that the rise in rates might still not be enough to hold money on the sidelines.

$11Bl of 30-year treasuries go into auction this afternoon. the spike in 30-yr rates had been in anticipation of investor's reluctance. we will see how easy it goes later today.

the funny part is that these auctions are really barely starting. nice to see investors saying to congress: slow down the growth of deficits... as a taxpayer i want them to be even tougher on that front.

"Almost all the decent ones were either sold or went into contract by last month."

been looking for the past 3 years and aggressivley for the past 3 months (I've put in 3 bids as well and been out bid twice). A lot of the apartments that I've liked that have been priced right have gone into contract.

The mortgage rates are also on the verge of pricing me out of some of the ones i like and as a first time buyer who (sadly) still lives with my parents, it's making me reevaluate whether i want to buy right now or not.

admin: I agree with your point, but in reality, all this is doing is driving up the cost of capital for them. But if they're committed to all these socialist programs, they will go into further debt to pay for it. There seems to be no way to stop the Obama Administration, as the GOP is nothing more than a noise maker on the sidelines right now.

The U.S. is in full Keynesian mode right now and while this didn't work for the Japanese for more than a decade, the Obama Administration seems bent on it working for us. At the end of the day, we will be forced to do what the Japanese eventually had to do ... and what we did during the S&L crisis, take illiquid assets off the books of our banks. Only with a clean b/s can normal credit flow be restored. I've said this many times on these boards, but everyone seems to think that there is some way to circumvent this most undesirable of methods.

De-leveraging is a painful process, but that is exactly the mess we are currently in. As for R/E prices, until this debt distortion (whatever % of prices that is) is worked out of the system, it is hard to say we are at a bottom. In Manhattan, I think prices have declined about 30% from their peaks, and that might be it, but we may also be more "in it" and might need to purge another 30%, to bring us in line with where prices really should be. See the NYTimes article at: http://www.nytimes.com/2009/06/07/realestate/07cov.html?pagewanted=1&ref=realestate.

We shall see.

"The mortgage rates are also on the verge of pricing me out of some of the ones i like and as a first time buyer who (sadly) still lives with my parents, it's making me reevaluate whether i want to buy right now or not. "

the higher the rates the lower your pricipal (cause prices will go lower). so it's the seller the one that should be worried about that, not you.

"They all said "if the interest rate goes up, then the housing price must come down to balance it out". Well, I sure hope so."

Rates have not really gone that up much. People are making a big deal over pennies. The small increase in rates will not necessarily yield lower house prices. Right now, rates are the same as they were in 2005, and in 2005 prices were INCREASING.

But, it is not 2005 anymore. Economy is not going upward, and everybody felt like they would do better next year. That's over.

goolsbee how do you know 914 sold for $870K...

It's kinda hard to believe all of the positive news when it comes from brokers. It's kinda like a car salesman actually telling you that the car you want to buy you can't afford, has been wrecked badly and repaired, and has a failing transmission.

Honestly just doesn't pay off in some industries; especially when their very salary depends on whether you buy or not. I'm not saying brokers are all intentionally dishonest, but it sure doesn't make sense for them to go around telling everyone to not buy right now because prices will continue to fall when doing so would mean that they are not going to get paid.

it will be interesting to see how many of these deals made in the last few months actually close. My guess is at least 30% will drop off due to lack of financing, board refusals and the uptick in rates for those who are not locked in at a lower rate.

> Rates have not really gone that up much.

Doubling is not "that much"?

I guess this explains why you didn't think RE went down either.

rates have not doubled retard. They are 5.8% right now. Please tell me when rates were 2.9%.