impact on rates when Fed stops MBS purchases??

Rates can really go up at this point and with no mbs purchases I think it almost guarantees that. Question is how much and when? If rates jump dramatically it can certainly freeze activity somewhat as buyers take time to assess the situation even more carefully. Buyers will also use the increase in rates to negotiate prices therefore causing some downward movement in prices. It will depend on the rate movement. For example, .5% rate increase on a 500k loan is about $155 monthly difference and a 1% increase is $313. Anything more than 1% should definitely have some kind of impact on the prices. Just my opinion. sunny.hong@bankofamerica.com

shong - i truly don't believe that a 1% spike is in the cards (I don't think you're saying that, by the way) - I'm personally thinking .5% max, though i don't have a crystal ball either

would anyone have any charts that show the correlation of nyc housing prices to interest rates? i've found it interesting that the broad discussion of buyers circles around "will higher interest rates price us out or not" without the corresponding "or will prices adjust accordingly"

any chart lovers on SE who may be able to help with this point?

im in the 50 bps camp as well...Bill over at Calc Risk is on record for a 35-50bps rise as the buying program ends...given market dynamics, I might take closer to 50bps than to 35bps, but in the end the markets may start to move weeks before in anticipation muting the impact if you measure it directly from the day the program ends

Hey UD - agreed on the pre-move; the market has plenty of time to prepare itself ahead of time

hey honeycrisp! where's my article on ud???? im in honeycrisp withdrawal over here...the shakes are killing me

coming up today :)

I'll say rates jump 100-150 bps, and sellers don't want to adjust for that, and we get a second drop in volume of transactions. I don't think it's going to happen as early as the end of 1Q though. Possibly we're in for a bad 3Q.

ali r.
DG Neary Realty

150bps would be a huge move, not sure I see that happening unless we see bond auctions start failing as issuance continues to fund everything

We're in unchartered territory, so who knows what will happen if/when the Fed stops buying MBS. Of course there is another scenario and the Fed keeps propping up the market. With the dismal consumer confidence # today, data continues to show weakness in this fragile "recovery". If the Fed does stop buying though, I could see a potential 100 - 150 bps move as well. Finally, given the current spread (lack of) bet Treasuries and the 30 Yr mortgage rates, I think something has to give. Why would anyone buy mortgages when you could buy treasuries at almost the same yield?

wow - two estimates of over 100 bps ... so front_porch and Vintage65, this would definitely mean interesting times in Q2 and beyond to be sure.

Aside from buyers using this as ammunition in their negotiations, as shong stated, how much would you say this would affect sellers' pricing? generally speaking, a 100 bps move equals to roughly 10% of the property price.

Are we saying the market should therefore expect an additional 10% drop, on top of existing predictions of 5-15%?

Flmao. 35 bps to 150 bps? Iz that all? Wow id love to live in your world where the greatest credit crisis in the world is played out so well. Where Bernie makes all the rigth moves, the bond mkt doesn't over-react, where savers are so happy to get 150 bps on their savings.

And just like the NYC re mkt, the key boys and girls is the cumulative effects of 1 bps move over the next 3 years. Let's just sat we just go back to standard rates like 7% and 20% down bf Greenspan juiced it in 2001. And for the record I've lived my entire adult life mostly in a Ho hum 8-9% mortgage rates, and we didn't have a bubble if this magnitude.

Seeing how ppl will 'rationalize' bidding as much as the banks will allow, it seems to me the best stop to a bubble is to not allow crazy cheap mortgages. You know 20% down with 10% on side and 3 yrs worth of w2.

Mr. Hong I'm glad you found a mortgage gig after that American idol thing.

Honeycrisp, I feel like we're already seeing a 5 percent move UP this spring..of course aggregates mean nothing, but my aggregate perception is in Manhattan we were 25 percent off peak, and now we're getting a 5 percent spring bounce off that low.

So, hmm, if I had to prognosticate, I'd say flattish pricing throughout 2010, with volume slowing towards the end, and then flattish pricing in 2011 with volume picking up as buyers adjust to the higher rates.

I'm talking the sub-$2 million market here; I think the $2-mm-plus market still doesn't have enough lending backing it to get decent liquidity.

ali r.
DG Neary Realty

front_porch - no kidding - seriously? you're seeing an upswing in prices?? (or are you seeing more expensive properties coming on the market now that sellers feel it's "safer", thereby skewing averages higher)

AND, if you believe that we'll see 100-150 bps higher in rates in 2010, you'd still say you expect flatish pricing?

i really hope you're right, but i'm very skeptical right now

Ali is a f'king idiot.

Move up as in the 3 bdrms are selling for 5% more than the 2bdrms a year ago. Ahhhhhhhjh. The borkers' definition of UP

From ACRIS:

115 East Ninth Street, #16A, recorded 6/30/09: $1.235mm

115 East Ninth Street, #10A, recorded 1/12/2010, $1.33 mm

Both sales Corcoran. I will grant you that the lower floor has a renovated kitchen, but it doesn't have a $100K kitchen.

ali r.
DG Neary Realty

R u serious. One data point? It's not even a 'wow' data point. Itz got that renovated kitchen hair stuck in it. Come on you can do better.

Just like to point out there were plenty of lemming running for the tax credit and to beat back bankers' bonuses. Flmao. You make a living in the here and now trade, your 'clients' live with a leveraged deflating assets for a long time. So plz don't tell me you care shit about the ppl buying and their future eating cat chow.

front_porch ... thank you for the example. having a property close higher than ask, for me, however, is not an indication of increasing prices. it may well be that the seller was savvy enough to price below market, generate lots of traffic, and get some healthy bidding action going.

(see this post that deals precisely with this issue: http://theapplepeeled.com/buyers/are-buyer-bidding-wars-for-real-in-manhattan/)

what i would look for is market rate increases (which we'll only see in hindsight) as they relate to the market bottom (wherever that is, though i personally don't think we've hit it yet). true, market trends begin with individual data-points, but i'm personally waiting to see many more before calling a bottom, let alone an uptrend.

front_porch - i was a bit quick on pulling the trigger - see that this was not an ask vs close situation - apologies

the trader in me will chime in - then again, Im a real estate agent for past 5 1/2 years and out in the field every day working for clients.

Im sure I am not alone when I say this: there was an improvement from early 2009 levels and that improvement revealed itself in slowly stronger bids and was progressive with time

Now calm down everyone (w67th). Im not saying its peak trades again. Not at all. All I am saying is this market experienced a dramatic and fierce swing when you look at the past 12 months - 36 months or so and its all relative when you say something that I just did above: the improvement was progressive with time.

Ok, when I look at deals being done right now that will ultimetaly show themselves in future lagging quarterly reports, IMHO they are:

1) slightly/moderately stronger than deals in early 2009 (FEB-MARCH fear months specifically) at the height of fear (when sales volume plunged)
2) similar to levels immediately AFTER Lehman failed but higher than what I call the fear months above
3) LOWER than early-mid 2008 levels
4) NOTICEABLY LOWER than peak year of 2007 sales
5) CLOSE TO levels seen in early to mid 2006, about 12-15 months prior to the peak in the final euphoric year that marked the bubble before the credit markets went bust
6) SLIGHTLY ABOVE levels in 2005
7) NOTICEABLY ABOVE levels in 2004 and earlier

Depending on what time period we are comparing to, the answer is different. I dont know why this is so hard for people to both comprehend and accept. Im no bull, Im no bear, and I dont have a PERMA tag in front of my bias at any given time. Those that know me and my writings in 2007/2008 know how bearish I was. Then something happened, OMG, prices plunged in a fast and furious way! That adjustment took about 7-8 months and the tail end was the height of fear in early 2009...As a result, I got less bearish because it started to happen.

Then, over time, something happened. SALES STARTED TO TAKE PLACE! Can you imagine? Oh my god! IT CANT BE TRUE! Well it was. Sales went from a total plunge to beserko around June, July, and Aug of 2009, about 3 months AFTER the fear months I described as the trough for this wave down (yes as a trader I look at it as waves, embedded in a longer term cycle)...The data shows this! The deals in June, July, Aug were only a very slight improvement over the fear months and the improvement started in lower end price points first. Over time, bids improved. As we got into November, December, January, and now February, it is easy to see the improvement when comparing to February of 2009's market! You want examples, I dont have time. Find them yourself.

But show me a classic 7 on 83rd and WEA, about 2,100 sft that can be had for $1.5m right now???

http://streeteasy.com/nyc/sale/283224-coop-490-west-end-avenue-upper-west-side-new-york

Yet this trade was a fear trade and in todays market would def sell for higher than 1.5m...so what do you call this?

What about a Park Avenue Classic 8, fully renovated, high floor with open city views? 1165 Park ave, 15C sale! Show me a similar one that can be had for 2.8m right now?

Another April 2009 trade, right after the fear months...nobody was signing contracts this time last year after a 6 month freeze up and those that had to sell, took hits. Todays market is quite different. Im out there, I see it daily. I have 5 active negotiations now totaling about 11.4m when I add up all my offers, and 4 of them have multiple offers we are competing with and trying to get. Do you think this market 12 months ago was like this? The answer is no!

You want to see it? Here, take a look at my chart with my new upcoming system

http://www.urbandigs.com/2010/02/pending_sales_90day_ma_closing.html

Its all relative and the market simply overshot to downside at height of crisis and market lows across all assets, pricing IN fear, then saw a reflation (forget the sustainability of it, you know my thoughts on that but it happened already and is in the books) and over time fear was priced OUT as market saw increasing demand. Stocks are a proxy for everything in 2009, and the swings were wild. I dont get why some cant understand this very simple market dynamics process that we went through.

Thanks UD..very useful explanation

So, bears -- is what he says accurate in your view?. If so, what upsets the apple cart going forward?...67 -- you are clearly implying that rates will exceed 150bp increase soon...you serious about that?....

Thanks UD..very useful explanation

So, bears -- is what he says accurate in your view?. If so, what upsets the apple cart going forward?...67 -- you are clearly implying that rates will exceed 150bp increase soon...you serious about that?....

Ud is not wrong his analysis of the past 18 months. What I am saying is that the bubble started in 2001-2003 quietly, then exploded from 2003 to 2006 and had a final orgasmic explosion in 2006 to 2007. Given interest rates were spread eagled flat by greenie and bernie ( I discount the fed raising rates in 2005 to 2006, as Chinese money chased our mortgage rates down past rational equilibrium, and quite a bit of laxer credit got $1mm mortgages ESP. In NYC, I don't see how we are 'bottom'. Does a mkt straight line to true equilibrium? Absofukingly NOT! Ppl are completely IRRational when it comes to housing. The ONLY thing stopping lemmings from bidding against each other is the lack of financing.

So the question is:
1) will rates rise?
2) will we see tighter underwriting standards?
3) will we see wages increase enough to offset the above impending ir rise/current tightening underwriting criteria?

My uniorn just took a dump. She thinks these questions are funny and only a borker would even think this is botto

Flmao. 150 bps is gonna happen on mortgage rates.

Banks set mortgages based on 'loss' experience and 10yr treasuries. Note that 99% of all mortgages are bgt by bernie. Do you think any 'normal' buyer with skin in the game ( ie. Not playing with taxpayer money) is not gonna demand 4% plus 250bps ((75bps to reserve for loan losses, 50bps to service, 125 bps for profit)?

Plz id like to see these lemming mortgage paper buyers. Oh the Chinese just got a wakeup call and is nervous as shit about their own 50% vacant office bldg bubble.

interesting..Id agree on the availability of mortgage financing and ease of leveraging for those that simply shouldnt be allowed to do so. That is an adjustment that Id like to think we absorbed. Maybe not. Household deleveraging, and banks deleveraging for that matter, will likely continue for years. And I agree with your bigger picture story from 2001-2007...

but, I do see clients buying out of necessity right now YET maintaining discipline not to lose control or let emotions take over after losing a few places to higher offers and seeing another one slip through their fingers. My clients just wont chase, and Id like to think I have something to do with that. The market is definitely behaving in ways that make me think this period right now is a smaller variation of an orgasmic move, but it was from a totally different level than 2006 --> 2007 was...a much lower level. Thats the thing.

But to answer your questions:

1. Yes, I think rates will rise for years but I dont think we will see a sharp increase of 150bps in a relatively short period of time, of say the next 6 months. That would shock me unless an event causes it.

2. I think we already did. For the most part. Underwriting isn't anywhere as loose as it was. Will it get much tighter from here? Probably, especially when full force of regulation hits in. But for most part, I still some reckless lending happening out there as banks fight for business - just not at stupid levels we came from before

3. Eventually sure, but not for a while. I for one see inflation in the form of higher rates, higher taxes, higher food, higher energy, higher health care costs, all the stuff that squeezes consumers wallets and crunches corporate margins...not the wage inflation stuff where we all are making more money.

my uniorn just took a dump too..what are the odds?

agreed, not the best time to buy mortgage paper... but what kind of time frame are you talking here for 150bps surge in lending rates to about 6.5%???

that is everything..I certainly dont see it by say AUG 2010? Do you?

By Summer 2011, sure, very possible. I personally think the fed will re-start their Treasury purchases, and I think they stopped that short to save ammunition for later. I can definitely see them monetize the debt via treasury purchases up to $1trln, especially if bond market starts to rollover for reasons discussed years ago in the END GAME piece on UD after all this crap.

Let's split diff and say dec 2010. M'okay? ;)

Let's play chess instead of tic tac toe for a moment. If the fed announces rates will rise and the mkt sees it increasing 10bps per month for 15 months with no end in sight.

If I was a chess man, id say the buyer mkt would say id like to be paid to 'catch the falling knife' I.e. Lower your prices. The sell side will once again be set by desperate/and/or smart sellers, just like in feb 08'.

So I CAN see this mkt in th nxt 12 months. The fact no one else can makes me giggle like a little girl. Either they r stupid or they drank he lemming juice.*

* if you can pay cash, you are and never will be a lemming.

w67 - you do realize why gov't gtd mortgages have a higher yield than treasuries, right?

U mean call feature of mortgages?

Irreegardlesslyly, mortgage rates are not 'normal'. Historically, out of recessions, banks put in a bigger spread to earn their way out of their lax lending standards and to juice returns for the inevitable recovery. I've never seen a mortgage mkt so manipulated and so off 'kilter' as the mkt we have now.

I'm just saying 'this is no normal timez' maybe we shouldn't be buying NYC re like the good ole days, heh?

w67 - yea, the entertainment gig got real tough.

I think a 100bps increase over the next 6 months is possible. But I dont think itll stay at that level for more than a month. Conforming rates were above 6% in '08 for a couple of months.

Digs: What do you see bank stocks doing as rates begin to rise?