Skip to comments.Downside of low US mortgage rates? Less selling
Posted on 07/11/2014 8:04:33 AM PDT by Olog-hai
Would-be home sellers across the country are grappling with a once-in-a-lifetime problem: They have mortgage rates so absurdly low it would hurt them financially to sell.
Doing so would mean giving up an irresistible rate in exchange for a new mortgage carrying a rate up to a percentage point higher. Their monthly payments would be larger even for a house of the same price. Thats discouraging some people from selling, thereby limiting the supply of available homes and contributing to slower home sales.
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Ran into this with a rent to own property recently - we would have been better off NOT selling at this time, but were contractually obligated to let them buy at any time they obtained financing.
Live and learn.
Nonsense. How can selling your house and buying another cause a limited SUPPLY of homes?
I used to sell real estate in Seattle. In my opinion, my belief was that the best time to buy was when rates are really high.
The reason is simple: People don’t buy a price. They buy a monthly payment. It means High interest rates are good for the buyer in several ways:
1. The price of the house is low (relatively speaking).
2. The interest part of the loan may be high enough to positively impact your taxes.
3. When interest rates drop, you can re-finance, sometimes saving hundreds or more per month.
If you buy when rates are low it means:
1. If rates go up, it will negatively affect the price of your house.
2. The interest part of your payments will have less positive impact on your taxes.
3. Little if any hope of your monthly payment ever going lower.
My new mortgage is a VA loan, nothing down, no origination fee. 3.75%. Had I put down 10% I would have only knocked the percentage down an eighth of a point. Historically speaking 3.75% is pretty awesome.
Forgot number 4 on the first list: when interest rates drop, prices increase, meaning your house could go up in price significantly.
BTW, in that “people buy a monthly payment, not a price’ statement is the dirty little secret regarding why interest rates are not going up any time soon. When you increase interest rates, it has the effect of reducing prices, all things being equal.
The last thing they want is headlines about house prices dropping. Especially with so many people STILL underwater on their mortgages.
I agree with that. Another set of facts supporting your premise is the price of homes in Texas. If you look around the DFW metroplex you find you can get a lot of home for the money. Some of that is the price of prairie land, but another huge factor is the high property taxes in that area.
Quick let's put the direst possible spin on it!
I don’t buy into the premise that interest rates affect home values. Demand drives home values, a lower interest rate means that all things being equal, a borrower has more purchasing power. The reason homes aren’t selling is because of the poor economy and stagnate (if not decreasing) wages. The American middle class’ purchasing power peaked in the late 60’s and has been in decline ever since. We’re in a depression, and most people’s wages aren’t keeping up with inflation. Who’s going to buy a when real inflation is double digits?
Had I put down 10% I would have only knocked the percentage down an eighth of a point”
I ran the numbers one time, and at no time in my calculations did paying extra money up front in any fashion was the resulting drop in interest rates worth the upfront costs. Of course, my calculations look into account the future value of money.
There are tons of house around our area here in Alabama for sale. Signs everywhere. But, NONE are selling. Not a one.
I refied my Countrywide 7% 30 year mortgage to a 4.25% 7 year ARM in 2004 that started adjusting year-to-year in 2011. I’m now paying a 2.75% rate. I could pay off the note but where else can you borrow money at 2.75%. Existing home sales have been recovering very well in my area, Florida’s Space Coast.