Rate rise impact on manhattan property prices

So long as they don't sell and AAPL doesn't go bankrupt, they'll have made money!

I would love to hear the rational a P.M. used to buy Apple Bonds. Other than there being a dearth of AAA corporate credits, can't believe the financial analysis was very convincing. 30 year duration with virtually no upside risk.

My bad. Apple bonds are not AAA.

Apple borrowed $3,000,000,000 at 3.9% for 30 years. I think Apples Treasurer should get a bigger bonus than Tim Cook. Absolutely brilliant! The three year bond at 5 bps over Libor wasn't too shabby either.

I think the rationale is about the same as 300_mercer's: all dependent on a spread to Fed-subsidized rates.

how much more likely is apple to go bust than the us?

affordability has plunged 16% since May 1 due to rising interest rates

http://www.zerohedge.com/news/2013-06-24/dark-side-soaring-rates-housing-market-lost-16-its-value-under-two-months

We're back to 2011 mortgage rates. We cannot and should not subsidize mortgage sellers forever. Of course if prices come back down we solve home affordability without a subsidy to sellers.

http://research.stlouisfed.org/fred2/graph/?g=jdx

>how much more likely is apple to go bust than the us?

How will the U.S. go bust if our debt is in U.S. Dollars and we can print U.S. Dollars?

>affordability has plunged 16% since May 1 due to rising interest rates

And 300_mercer is panicking.

A week ago I posted a couple of graphs comparing House Prices and Mortgage Rates. The first graph used nominal house prices and the second graph used real house prices (adjusted for inflation).

In that post I noted that historically there has been no strong correlation between interest rates and home prices (I was agreeing with a quote from Douglas Duncan, chief economist at Fannie Mae).

http://www.calculatedriskblog.com/2013/07/house-prices-and-mortgage-rates.html

I bet holding a 30 yr apple bond to maturity would lose money factoring in inflation.

we don't know RE will crash with rising rates. we do know that bonds will.

House Prices During Periods with a Sharp Increase in Mortgage Rates
Date Mortgage Rate1 Date Mortgage Rate Nominal House Price Change2 Real House Price Change3
May-83 12.63% Jul-84 14.67% 6.6% 1.9%
Mar-87 9.04% Oct-87 11.26% 5.2% 2.8%
Oct-93 6.83% Dec-94 9.20% 1.2% -1.6%
Apr-99 6.92% May-00 8.52% 10.9% 7.5%
Apr-13 3.45%

http://www.calculatedriskblog.com/2013/07/house-prices-and-mortgage-rates.html

>we don't know RE will crash with rising rates. we do know that bonds will.

Are you saying that because bonds are a fixed income investment but real estate is impacted by the income levels in the economy?

RS: the author of that graph points out that the economy was rising. Our GDP is expected to be 1.9 or lower. And he is not measuring affordability. Most brokers are now saying that affordability is not a problem. That is because they are using the median home price which is completely skewed by hedge funds and other investors that pay cash for homes. When you overlay affordability on mortgage rates -- which is the concern of most buyers-- affordability tracks back to the years 1996- 2003. That would cause a difference in house prices.

>> How will the U.S. go bust if our debt is in U.S. Dollars and we can print U.S. Dollars?

The US can choose to default rather than print more money. Possible sources: political brinksmanship regarding debt ceiling (a primary issue leading to the 2011 downgrade of US debt), a decision to screw (say) foreign holders of debt in favor of local SS recipients, etc.

While AAPL's cash hoard is very large (at one point they had more cash on hand than the US treasury in 2011), the US clearly has a greater ability to pay its debts. On the other hand, AAPL may have a greater willingness to pay (again, refer to 2011 and AAPL having more cash than the US). If AAPL doesn't pay its debts, the company's ownership (cash hoard, property, etc.) transfers to the bondholders in accordance with bankruptcy law. If the US defaults, it just rewrites the law. You don't get jack. The US has no skin in the game beyond the wrath of future would-be bondholders.

>> I bet holding a 30 yr apple bond to maturity would lose money factoring in inflation.

Given that the bond issued at 3.90% and 30-yr CPI trades at 2.25%, seems like a bad bet unless you're counting a default.

Apt23. If by affordability you are speaking about the NAR's affordability index then that measure is useless. This index has almost never said homes were not affordable. And it misses all granularity by using median income to buy median home.

I also don't think rising mortgage rates have much effect unless they rise a good deal more. Why?
Firstly we have not had broad participation by first time home buyers, so that can't get worse. Secondly lots of investor properties paid for with cash which is unaffected by mortgage rates. Third rates are only back to where they were in 2011 and still far lower than 2008

Rising rates could be far worse for stock and bond investors. Corporations won't be able to go to the bond market as much to issue bonds and then engage in financial engineering, such as stock buy-backs or to fund dividends. Also highier rates pose a challenge to stock prices since stocks need to clear a higher ROI threshold to justify a given stock price(doesn't matter if you are discounting dividends or earnings and since stock returns are a 50 year projections the price can move quite a bit)

->greensdale, trying to explain macro s point

On the long run, rates rises are actually good for real estate (as for any real asset). If the growth picks up to 3%, inflation to 2%, and rates rise to 4%, it just means everything is growing and getting more expensive. This will get us back to a more normal rates/growth environment.
That would be very bad for bonds of course as they are not inflation protected.
Of course there is also the scenario where everything spins out of control, inflation, deficits, rates,... Then you would be better off with gold.

As I explained four days ago, in the fifth post on this thread - "...In NYC (if that's what you're specifically asking about), I think the relatively tight inventory has a lot more to do with prices than an interest rate bump to, say, 5.25%..."

http://www.nytimes.com/2013/07/09/nyregion/amid-housing-scarcity-many-buyers-are-going-home-empty-handed.html?hp

>As I explained four days ago, in the fifth post on this thread

Getting a little testy that people are ignoring you?

But you're not ignoring me. You literally have been responding to each and every thing I post. Now let's see if you respond to this post!

Why would I ignore you matsonjones? I'm open minded and every so often you say something marginally useful, like four days ago, on your fifth post, you made that point and backed it up with a link or something.

Hilarious

Hi C0C0, what did you think about Eliot Spitzer's announcement? Do you prefer Spitzer or Weiner?

"If the growth is strong (>3% GDP increase for 1-2 years), that may not matter much either. "

3% growth?? Oh, is Obama leaving early?

Are we finally getting the rate rise?: http://streeteasy.com/nyc/talk/discussion/36264-get-ready-for-the-taper

So rates have been rising, and rents are going to stay flat: http://streeteasy.com/nyc/talk/discussion/36295-no-rent-increases-big-lux-building-takes-the-lead. What does this mean for 300_mercer ... how long till the margin call and he has to tap out?

Silence speaks volumes.

http://finance.yahoo.com/news/home-prices-push-past-rising-132813439.html

"Despite rising interest rates, home prices continue to surge higher. The latest read shows values, including distressed properties, up 12.4 percent in July, year over year."

"This is the 17th consecutive month of annual gains for home values nationally."

"Mortgage rates are about a full percentage point higher today than they were at the beginning of March. The average rate on the 30-year fixed hit 4.80 percent by the middle of last week"

Archive this thread and wake it up when rates go above 5%. Until then this is way too early to discuss.

When rates are above 5%, we will probably have already elected Bill de Blasio as our mayor who will have instituted higher taxes, chased away NYC's bigger taxpayers, welcomed criminals and kept open money-sucking hospitals that even Cuomo doesn't want open. So it will be hard to isolate the 5% rates.

Something magical happens in the 20bps spread......

Unicorns shoot out of my azz.

whole?