The average 30-year U.S. mortgage rate bumped up 30 basis points over the past week to 5.59 percent, a 68 basis point jump over the past two weeks. Of course we’re kidding about it being all the Russians’ fault, but they do come into play.
∙ Mortgage Rates in U.S. Rise to Highest Since November [Bloomberg]
∙ A Six Month High For Mortgage Rates (But Still Historically Cheap) [SocketSite]
∙ BRICs Buy IMF Debt to Join Big Leagues, Goldman Says [Bloomberg]
I prefer to blame the ‘Japanese’ (likely actually North Koreans)
http://www.businessinsider.com/italy-seizes-a-ridiculous-135-billion-worth-of-smuggled-us-bonds-2009-6
Adios move up buyers. At this rate, all that talk about the danger being only in recasts vs. resets might not hold water. Both might be ticking bombs if we keep going higher.
I will be interested to see what happens to the new condo market, with rising rates and increased presale requirements for mortgage financing.
Out of curiosity I called today (anon) inquired with Wells and was told new condos in the 94105 zip of SF now require a LTV of 65%! Un-real! Clearly the condo discounts must be deeper than we think, can’t wait to see the tax records once they are published for recent months closings.
This brings up another interesting point, in past it has been discussed it’s best to buy cheaper with higher int. rate vs. buy higher with a lower rate. Even if the prices drop, if the LTV continues to tighten, you still end up putting the same amount of money down in both cases. This equates to the only savings potential being: 1) lower payments although not too much diff there if you got in higher price with say a 4-5% rate vs. a lower price at 6-7% AND 2) being once prices go up you can make more off the sale. Of course some of this is countered with the higher deduction you get on the higher mortgage amount. Regardless you still need close to if not the money down, and regardless you still need to wait long term to make a profit although not as long as the earlier buyer.
It seems the scales are still holding fairly even?
GWTF, one additional thought for you. If rates continue to rise, forcing prices down, more homes (including more desirable homes) will be in FHA range and it’s 3.5% down requirement…
Interesting question.
Let’s assume 20% down is still required for the sake of comparability. Let’s also assume that 2-bedroom condos that were selling for $800K last year are going for $650K today. How much would interest rates have to go up to make the payments equal?
$800K purchase, 20% down, financed at 5.5%. Monthly P&I is $3,633.
$650K purchase, 20% down. To get the same payment, mortgage rates would have to rise to 7.5%.
Not sure if that’s what the question was, but obviously those who waited to buy are better off, because rates have not gone to 7.5% yet.
But the overall market value of homes would continue to drop if the interest rate keeps going up. The $650K house would be sold for much less than that of the value today.
Actually if you took:
800k with a 20% down at 160k
650k with a 35% down at 227,500k (I was specifically talking SF condos 35% req. now).
800k with a inc conf for 640k after down at 4.875% which you used to be able to get = a mo. payment of $3387 est.
650k with a 417k wells std conf today for 6.0 with 1pt plus the $5500 equity at 8% to get monthly of est. $2542
Obviously you save $845 per month on the 650k but it’s not as high of a savings as I thought it would be PLUS you put more down ($67,500) to get the 650k property because lending standards are requiring more down.
Assuming all the money is lost anyhow in today’s market until one sells far down the road you than could take the savings on the 800k down prop and live for almost 6.75 years at the same cost as the cheaper property. (If my math is right).
Or better yet invest that money some place else while getting the larger write off.
The 650k prop does not come out ahead until they sell – if they picked the property that increases in value better, good locale etc. Many variables we could discuss here.
FHA range throws a whole new twist to it, on the prop values that can qual of course.
You also can not forget the cheaper property taxes on 650k relative to 800k. With Prop 13 this is a gift that will keep on giving…
True but you can also get the prop taxes thanks to the same reduced on the more expensive property.. It does not last forever, I will give you that. You could however get your base value reduced if you timed it right and bought right before the drop, put you in the same league as the prop drops 3-6 months out from yours. Not as good but still not as bad as your saying. Also I am pretty sure you get to write off the larger prop tax as a bigger deduction. For those that itemize & those not W2 these deductions are golden.
I know I will get killed for saying this but I just don’t always agree that buying lower price with a higher int rate is always best in every sense. Now renting comp to buying, yes I agree you can come out way ahead of the curve. Not a bear or a bull just playing devils advocate.
Really my points were just providing a different take on it all.. was just surprised after actually calculating the numbers that the savings was not more in buying the cheaper property.
If you buy at the lower price with the lower rate, there’s a chance you can refinance later on.
Yup, ask the millions of upside down homeowers how well refis are doing with a high number mortgage.
Affordable housing = Cheap houses
Period.
The golden rule is you shouldn’t buy a house more than 3 to 4 times your income. And 4 is a stretch.
Of course if you think affordable housing = cheap mortgage then I have a cousin with an extroardinary opportunity: 900K for 2500/month! You can buy a 1M home on a 150K income. Can you believe it? It’s called an option ARM and it’s perfectly safe, safe, safe. Otherwise the feds wouldn’t allow it ;p
It would be nice to focus on the jumbo market, which is the only relevant loan market for SF. According to my broker, jumbos blew up almost a year ago and the market has never returned. LTV requirements are out of this world. (I don’t know about 65% as alluded to above, but they are high.) And the spreads are blown way out. This alone has more to do with sales volume in SF than the 10-year or the Fannie/Freddie debates that rage in the comments… How about it, ed.?
Dave, I think that’s right to a degree. But conforming loan limits are now up to $625k and even $729k, and (with the down payment) that covers the majority — or nearly so — of what is actually selling in SF. But you are right that the higher down payment requirements, tighter lending standards, and higher jumbo rates have all contributed to the freeze and declining prices at higher price points since one actually needs to have some pretty substantial savings and a high income to buy there now — a much smaller buyer pool than two years ago when you just needed to be able to sign your name.
The 35% I mentioned was an anon inquiry I made with Wells regarding the “going standards” for Condos in the SF 94105 zip. Back in mid 2008 it was around 15-20% fyi. Rates on increased conforming up to 729k is running about the same as the standard 625k conforming from what I checked yesterday. Yes, Jumbos are are a bit higher. I am speaking of 30 year fixed, no funny business. What is interesting is the FHA rates have been on the rise, and are now higher than the standard loans.
What I have found has really changed is that back in mid 2008 banks would be willing to lend some on the equity lines, now that is a lot tougher. Even by mid 08′ equity lines had changed from 10 year products back in 2004 to 5 year products today.
I agree that higher end/priced properties are in some trouble.