Rising mortgage interest rate effect on home values

[younginvestor2013]

What is everyone’s thoughts on how the slowly rising mortgage interest rates will affect housing values?

Will it decrease or increase housing values?

Is now a good or bad time to buy? What about to sell?

Just curious to hear the RE’s thoughts on the subject.

 

[jazz4cash]

Tell us what you think. Local markets will react differently. Rising rates will generally suppress prices on homes. Most folks are limited by mortgage payment amount.

 

[audreyh1]

It has already caused a drop in housing prices in many parts of the country.

 

[ERD50]

Please provide a scenario where higher interest rates would increase housing values. I can't think of one.

-ERD50

 

[Walt34]

People will keep buying houses for as long as they can make the payments. And some even if they can't. Many will remember 17% mortgage rates and people bought houses even then.

 

[Dtail]

Looking to buy next year for cash, so let the rates rise for potential price suppression.

 

[audreyh1]

People will keep buying houses for as long as they can make the payments. And some even if they can't. Many will remember 17% mortgage rates and people bought houses even then.

But payments are going up for a given house, so people end up buying a cheaper house. Price pressure is downwards.

 

[ExFlyBoy5]

Another factor is that a lot of people aren't interested in giving up the 3% interest rate for a 5 or 5.5% rate, so this only exasperates the problem(s).

 

[haha]

What is everyone’s thoughts on how the slowly rising mortgage interest rates will affect housing values?

Will it decrease or increase housing values?

Is now a good or bad time to buy? What about to sell?

Just curious to hear the RE’s thoughts on the subject.

These questions kill me. Clearly, all else being equal, which it rarely will be, house prices move inversely to mortgage interest rates.

Ha

 

[jazz4cash]

Another factor is that a lot of people aren't interested in giving up the 3% interest rate for a 5 or 5.5% rate, so this only exasperates the problem(s).

I don't follow....what are these rates?

 

[Dtail]

I don't follow....what are these rates?

Guessing that they have a current 3% mortgage, which they don't want to give up in trading up to a bigger house along with a higher current interest rate.

 

[Bamaman]

What is everyone’s thoughts on how the slowly rising mortgage interest rates will affect housing values?
We've been looking at homes 90 minutes north of us. It's been a demand based vs. cost based housing market with values at least 2x what they're really worth. With thousands of new and existing homes just sitting on the market, values are due for a downturn.

Will it decrease or increase housing values? They've been due for a decrease in some "hot" markets.

Is now a good or bad time to buy? Bad time to buy. Great time to sell if you can find a buyer with enough down payment.

Just curious to hear the RE’s thoughts on the subject.

I understand commercial building is still strong. But home building in many markets has cooled, and framers and carpenters are working but don't have 2-3 houses lined up in front of them to build.

 

[street]

But payments are going up for a given house, so people end up buying a cheaper house. Price pressure is downwards.

Yep exactly.

 

[Spock]

... Many will remember 17% mortgage rates and people bought houses even then.

Many OLD people will remember.
But many home buyers weren't born yet in the mid-1980's.

 

[jazz4cash]

Many OLD people will remember.
But many home buyers weren't born yet in the mid-1980's.

I remember when I bought my first home in '83. I was lucky to get a mortgage subsidized by a state bond issue for 1st time homeowners at ~12% Everybody said mortgage rates would never drop below 10%. It was a LCOL area which makes a huge difference. There was a lot of owner financing going on at the time.

I guess that makes me OLD.

 

[street]

I can't remember what I paid for a house loan rate in 1984. At that time I built my own home and had a construction loan and not sure if that was the same as a conventional home loan or not. I know I just took the bills in and they paid them for material etc. and had 6 month's before I had to start any monthly payment plan.

Interesting that 10 to 12% interest rates for the 80's, must have not bothered me much.

 

[Dtail]

12.25% fixed for my first purchase (co-op) in 1983.

 

[imoldernu]

My opinion only:
Housing will lead the way to a down economy, and perhaps the lead to a multi year recession. Probably not as bad as some previous down times, but the tumbledown effect of higher interest rates does not simply mirror the Fed rate increase.
Some of us recall 14% mortgage rates, but that will certainly not be the case, so we have to look at what happens when rates rise even moderately.

People have to live... somewhere. Not buying means rentals. As rental rates rise, there is no compensatory lessening of the non-homeowner's expenses. No "extra" money going in to the economy.

Those home owners who DO move, by choice, or necessity, face higher interest rates and the probability of losing money on the sale of their prior home. Longer market times, lower prices. So yes... a nicer, more valuable home, but nothing that will affect the economy directly.

At the same time, the sharp reduction in housing starts, doesn't help the economy in any positive manner.

Historical data and charts purporting to forecast the housing effect may be an indicator, but getting down to the nitty gritty of the hows and whys may be a simpler indicator for the future.

 

[pjm-7]

I was able straight assume a 12% VA loan in December 1983 ( wow, 35 years from the closing). You could never get a loan that way today. I had to put up about $10,000 in equity and pay $35 to the title company for the paperwork. This was a bargain since interest rates were in the 14-15% area if you could get a loan at all. Today's rates are still a bargain. The Fed has a long way to go before they really choak the economy.

 

[Spock]

...

People have to live... somewhere. Not buying means rentals. As rental rates rise, there is no compensatory lessening of the non-homeowner's expenses. No "extra" money going in to the economy.
...

It moves from the renters pocket to the landlords pocket... so the landlord has "extra" money to put into the economy, such as buying/building more rentals.

 

[JDARNELL]

It moves from the renters pocket to the landlords pocket... so the landlord has "extra" money to put into the economy, such as buying/building more rentals.

Why would landlords buy more rentals in a rising interest rate market? They will look to pick up rentals from the folks that are on the margin and move towards foreclosure. News flash increased supply of apartments have already hit the market because investors locked in low rates building new places. They are willing to overbuild let vacancy rates creep up because they know in 10-15 yrs they will have them full and can sell them based on cash flow valuations. That is what we are seeing in Colorado.

 

[Helena]

Looking to buy next year for cash, so let the rates rise for potential price suppression.

Good for you!

A dark cloud for some means a silver lining for others.

I also benefit with interest rates returning to historic norms.

.

 

[jazz4cash]

I think we are a long long way from rates being high enough to “bring the economy down”. Yes things will slow and variable rate loans will punish homeowners but as long as the rest of the economy is OK we ll be fine. It’s the current low rates that are the anomaly. Rates in the 6-8% range are OK.

 

[workmyfingerstothebone]

We paid 11% interest on our initial home loan in 1989. Basically we bought the payment we could afford, the house was secondary.

 

[Winemaker]

For the first time since 1999, I have received only 1 phone call for a $600 2 bedroom townhouse apartment with a range, fridge, washer and dryer in a low-middle working class neighborhood. The caller wanted to know if I took Section 8, I do not. There are few ads in local paper, and this unit was rented for the past 7 years by the same tenant for $550.

According to Zillow, my 2 bedroom SFH rental that I paid $85,000 in 8/2012 is now worth $122,000. However, the suggested rent is $800 and I have been receiving $1000/month for 2.5 years.

My adjustable rate mortgage on another rental building went from 4.25% to 5%, and it's adjusted to the 1 year treasury rate.

So, are interest rates affecting my real estate market?