Mortgage Rates Explode Upward

Submitted by Rich Toscano on June 11, 2009 - 12:53pm

Three weeks ago, according to quasi-government mortgage giant Freddie Mac, the average rate for 30-year fixed mortgages stood at 4.82 percent. This week, the average rate was 5.59 percent.

continue reading at voiceofsandiego.org

(category: )

Submitted by UCGal on June 11, 2009 - 1:39pm.

Selfishly speaking, I'm glad my refi went through a few weeks ago.

Submitted by peterb on June 11, 2009 - 2:08pm.

Will this put downward pressure on housing prices?

Submitted by an on June 11, 2009 - 3:58pm.

peterb wrote:
Will this put downward pressure on housing prices?

Only time will tell. For those who are actively looking, price would have to t drop ~7-8% from 3 weeks ago just for them to maintain the same monthly payment.

Submitted by drboom on June 11, 2009 - 4:13pm.

UCGal wrote:
Selfishly speaking, I'm glad my refi went through a few weeks ago.

Also selfishly, I'm really bummed since I've got an offer on a short sale that was accepted in late April. I'd have to drop the offer by nearly $20k to keep the same monthly payment, but I don't think it would fly.

Oh well, what's bad for me is good for the country, right?

Right?

Grrrr.

Submitted by carlsbadworker on June 11, 2009 - 4:34pm.

AN wrote:
Only time will tell. For those who are actively looking, price would have to t drop ~7-8% from 3 weeks ago just for them to maintain the same monthly payment.

I don't believe this. Time and time again, the majority of the US population has proved to be irrational. The effect of the mortgage rate is secondary as other poster has pointed out. The marginal buyer will be forced out of the market because they can no longer afford the house. But others will still close the sale with 9% higher payment.

Submitted by JACKQLYN on June 11, 2009 - 6:14pm.

As an active buyer since Febuary - this changes the entire game for me. I've suddenly become obsessed w/ watching it go up.

Less buying power & I'm hitting the exit.

Submitted by an on June 11, 2009 - 6:43pm.

JACKQLYN wrote:
As an active buyer since Febuary - this changes the entire game for me. I've suddenly become obsessed w/ watching it go up.

Less buying power & I'm hitting the exit.


Will most people head for the exit or will they just buy a smaller house?

Submitted by JACKQLYN on June 11, 2009 - 6:55pm.

Yes, of course.

The smaller house is just before the exit.

Submitted by KIBU on June 11, 2009 - 7:03pm.

I had not guessed it to go up this fast this early. Fed/treasury said they wanted to spend 1.5 trillions on MBS, so far they spent 500 billions, only 1/3 of the way so based on that I was thinking low rates has many more months to go....

Rich is right on with his expectation of a shoot up of rates in the not so distant future.

I am now guessing that more rates hikes will ensue in the next months due to the many more treasury auctions we will have. It's a matter of supply/demand of treasuries and also the trust of others on the ability to pay debt and inflation risk. Not sure what kind of things can be powerful enough to reverse that.

My big question is if the rate increase influence the market enough to bring down the price, or other factors will play to keep the price inflated above real market value. I have heard some argued that it may not be a sure thing that price goes down as rates go up.

I am very impressed with Rich's ideas as usual. Helped me a great lot. Thanks!

Submitted by DWCAP on June 11, 2009 - 9:00pm.

carlsbadworker wrote:
AN wrote:
Only time will tell. For those who are actively looking, price would have to t drop ~7-8% from 3 weeks ago just for them to maintain the same monthly payment.

I don't believe this. Time and time again, the majority of the US population has proved to be irrational. The effect of the mortgage rate is secondary as other poster has pointed out. The marginal buyer will be forced out of the market because they can no longer afford the house. But others will still close the sale with 9% higher payment.

I am not sure what you dont believe, it is just math. As rates move up, the principal must move down to maintain the same payment. On a 300k house, it is about 25k that must be reduced to maintain the same monthly payment.

Rationality about rates is a totally different story.

Submitted by MMrenter on June 11, 2009 - 11:18pm.

The rising rates definitely change the picture for me. I have been actively looking for the past few months in the low end of the market because my rent was more than the total cost of ownership would be. With the extra 8% in payments, that is less clear. Add to that (temporarily?) rising prices, the 25 other offers on the low end properties I can afford, shadow inventory that refuses to appear, and all the other caveats Rich talks about. A higher cost of borrowing may be just enough to keep me renting for better or worse.

Submitted by propertysearcha... on June 12, 2009 - 7:39am.

I think this is just the next step in government manipulation. Earlier this year they dangled the tax credit carrot, low rates, and lowered inventory by moratoriums. People responded and the govt/banks are probably extremely pleased the have created a bubble market mentality again. It worked so why wouldn't the greedy banks want to see if they can cash in a little extra profit during the summer. I predict the rates will go up this summer as they usually do. Then I think they will take a dip this fall one last time to try and unload the "shadow inventory" that we all are hoping is "REALLY" out there.

Submitted by peterb on June 12, 2009 - 11:08am.
Submitted by sdrealtor on June 12, 2009 - 12:29pm.

The question we dont know about that California graph is whether the spike represents a catch up on what was held back or whether it is the new level that will continue and/or grow.

Submitted by poorsaver on June 14, 2009 - 11:42pm.

As I'm sure you are all aware, even rates in the mid 5's are very low compared to historical norms. People whining about rates at these levels need to have their heads examined.

Submitted by massey on June 15, 2009 - 1:08am.

I think the explanation of rising treasury yields is less a consequence of improving economic conditions and more a consequence of waning appetite for treasuries.

The rising rates will drive down prices. The only question is by how much. I don't think we're out of the woods quite yet.

Submitted by peterb on June 15, 2009 - 10:33am.

Market tanks and the rates may come back down. Due anytime now.

Submitted by WaitingToExhale on June 15, 2009 - 5:37pm.

poorsaver wrote:
As I'm sure you are all aware, even rates in the mid 5's are very low compared to historical norms. People whining about rates at these levels need to have their heads examined.

Except that when rates are at 5%, a rise to 6% would be a 20% increase in mortgage rate... That's a huge jump for such a short period. Homes are priced for the low interest rate. That's why the government has put such effort into keeping it low, to artificially inflate house prices. Home prices should have to drop relatively significantly to accommodate the increases cost to buy, unless homes are effectively appreciating again.

Submitted by PreparedInvestor on June 26, 2009 - 1:49pm.

peterb wrote:
Worth a read today:
http://www.doctorhousingbubble.com/

Hmmm .. Alt-A loans are not as riskier as sub prime loans. But the big chunk of Alt-A loans are going to hit in 1Q 2010. Doesn't that mean the feds will have to keep the rates low until these majority loans are reset & locked in at a lower fixed rate. Employment report is not looking better; wouldn't that keep the rates lower for a while? Your views?

Hope that Credit Suisse and Business week keeps that chart updated..

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.