Interest Rates Rising - Impact on RE

Hello Again Ottawa,

I'm a bit naive here.. but very interested, as I mentioned in my other thread that i'm a 1st time buyer..

What is going on with the interest rates? When are they rising and do we know by how much approx?

We were sellers last year, we're still selling this year. Only keeping the best properties.

Bulls and Bears make $. Pigs get slaughtered.

Good questions but ultimately it will come down to the math.
For every 1% rise in interest, the effect would be $10,000 a year in maintenance cost per $100,000 of mortgage.
As the lowering interest rates were a boosting effect, the rising rates will be a dragging effect.

Another big question will be the change if any on bank policies for lending.
Higher interest rates may loosen the banks incredibly tight policy the last 5 years.

$1,000

yes 1k not 10K, thank you crescent

For me, as a potential buyer, it causes me to think twice and likely may lead me to continue to rent as I look to move to a new neighborhood in the next couple of months for family reasons. That's because I'm not certain that we will be in the new place for more than 5 years. My concern is what happens to prices if rates rise significantly in the next few years. I'm not looking at my down payment as an "investment," but there seems to be a lot of risk in purchasing a non-long term residence in a rising interest rate environment. With NYC transaction costs factoring into the equation as well, that only adds to the concern that if I sell in year 5, I am going to take a net loss. Anyone else in a similar situation? I've seen a lot of folks do very well in NYC real estate, but have also had a few friends get pinched when they had to sell in '09/10 to get more space for a growing family.

Rising interest rates are necessarily a sign of a healthier economy.

Wall St. bonuses are up 15%, and will only continue to rise each year.

That will attract more filthy dirty petroleum [and other new big corrupt] money from the second and third world, including Texas and Canaday.

Buying when interest rates are high mean selling the asset at a MUCH higher price when interest rates fall again.

New York residential real estate only goes up ... onward and upward.

Excelsior!

Rising interest rates mean a stronger economy which mean higher incomes, wages etc which more than offset the increased costs in mortgage payments. Leading to the risk of higher prices if you are an impending buyer.

I agree with steveF -- rising interest rates will bring rainbow-hued luxury unicorns.

I agree with the following statements made by alanhart:

>Rising interest rates are necessarily a sign of a healthier economy.
Agree

>That will attract more filthy dirty petroleum [and other new big corrupt] money from the second and third world, including Texas and Canaday.
Agree

>New York State (inclusive of C0lumbia C0unty and W1lliamsburgh C0unty) residential real estate only goes up ... onward and upward.
Agree

I remember the days when people were content with normal unicorns.

Hmm. I would expect a bit of a rush from those that need to finance, so they can lock in lower rates. Not sure I agree that the stronger economy will translate into across the board higher wages. Wages have been slow to rise of late.

As a potential buyer and seller who is 18 months into a 3.375% 10/1 ARM, it's tough for me to think about giving up such a great rate and going into something that would be at least 100bps, more like 150 bps higher today. However, since I benefited from this rate by refinancing, not through an initial purchase, I have to see it as found money, as I think most owners should.

I personally believe the $1mm+, and more so the $1.5mm+ NYC Metro market (especially Manhattan) has been affected very little by low interest rates. Low inventory and basic supply and demand has driven prices up, plus the even more limited amount of quality condo product in this price range has affected things even more. I highly doubt anyone paying $1,000+/sq.ft., let alone $1,500+/sq.ft. is that sensitive to rates. There will be a lot of bitching an moaning, but very little backing out of deals if rates get back to 5-5% on a 30 year.

Of course, all IMHO.

Two things -
1) Rate expectations are already priced into mortgage rates. The banks aren't just going to move all the products when rates start coming up. The rate outlook is reflected in what you can get today (e.g. big premium for 30 yr fixed vs 10 yr ARM vs. 5 yr, etc.)
2) Cost of financing does matter in NYC for people doing rent vs. buy calcs. If rates go up and rents stabilize, I think that is a negative.

Generally agree with others though that a positive economy should mainly offset impact of rates...

>Generally agree with others though that a positive economy should mainly offset impact of rates...

We already have a very positive economy. At least for non-smokers for the past 5 years now.

Rising wages always lag the recovery. Companies will not increase wages unless forced to do so. As the labor market gets tighter and tighter wages will respond accordingly.. :)

Amazing homeless problems in SF area. Rising rates won't make houses more affordable.

Oh no, rates are up, I have to go back to living in Ottawa, or to living on Mercer Street.