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On the Fence, Other/Just Looking in Westborough, MA

Does anyone else think that artifically low interest rates are actually hindering the housing recovery?

Asked by On the Fence, Westborough, MA Thu Sep 8, 2011

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Interest rates are not artificially low. As much as we'd like to point the finger at our central bank for trying to stimulate our economy out of the downward spiral with QE, the main drivers for our low interest rates is coming from concentrated private investment funds from around the world, trying to protect their principal investments. Even if the US doesn't have a AAA sovereign debt rating, Treasuries still offer the best combination of a safe and highly liquid place to park money. Hence, interest rates are still being driven by natural market forces of fear and greed, even if the debt market doesn't perfectly reflect a free market.

If increased affordability from low rates aren't helping the housing market, how can decreased affordability from higher rates? If mortgage payments suddenly shot up 50% because mortgage rates jumped 2%, that would just put a damper on an already weak housing market. Just one look at UK's still strong housing market is enough to convince me that low interest rates help. So do ample employment and easy credit.
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4 votes Thank Flag Link Mon Sep 19, 2011
- Mack how long have I been preaching this?

It's been a long time, Louis!

To my mind, if you're thinking about putting money into something because it will be worth more in the future, you are a speculator, not an investor.

But, you have to live somewhere, and the fact is that home ownership has turned out to be financially beneficial to more families than have been financially hurt. Many people are measuring the value of home ownership by post-crash standards, which is a bit like measuring the value of air travel after a plane crash. "See that? Nobody should ever fly again!" Great. You want to take six days crossing the Atlantic by boat, be my guest.

Two years ago, people were convinced that the financial world was coming to an end. They thought their IRAs were on the way to worthless, they were selling stocks instead of buying, and the market is up 80% since then. Oops.

So we read that the housing market "still has a way to go." But who writes that stuff? Why should we believe them?

Maybe it does, but one principle of markets is that they reflect all of the opinions of the marketplace. So today's price reflects that degree of pessimism, as it reflects whatever degree of optimism there is. Once you've decided that you want to be a homeowner, and you have the wherewithal to make it happen, you become a speculator the moment you decide to "wait out the market."
3 votes Thank Flag Link Thu Sep 29, 2011
From a purely financial point-of-view, we sell to homeowners and we sell to investors. Investors are doing okay, because rents are generally up, even though values are down. I'd like to see homeowners do as well, too.
3 votes Thank Flag Link Sun Sep 25, 2011
- My "professional experience" is what I base my opinion on.

The kids, today.

Michael, there is no such confusion - to a man with a data set, every problem looks like it can be solved with a chart.

In many markets, there was no such "inventory buildup" in the late 1980s. You can look it up.

I'm as data-driven as the next guy, Michael, but I have grown accustomed to very intelligent people being able to decide faster and more reliably based on their accumulated knowledge - their "gut" - than by processing it into tables and charts that may or may not be understood.

Point being - have some respect for people who prefer to communicate from experience, rather than from the ability to recite prepared works. It will serve you well, and help you make friends across the communication divide. It will also help you realize it isn't enough to have somebody else's storyline superimposed upon the data - experience will help you use a storyline to explain the import of data to others.

All the best to you both.

- No bank would lend money at the current rates to allow an individual to finance the purchase of a house if it were up to them.

Sure they will.

- Everything the govt is doing is only prolonging the price correction.

As if that's a bad thing. Everything health care does is prolonging the time before death, too. The problem with that is?
3 votes Thank Flag Link Fri Sep 23, 2011
Maybe yes, maybe no, but, at the end of the day, it is what it is. All we have is today, and people need a place to live. There are only two choices: Buy or Rent.

Look at history. Myself, I purchased my first home in 1984. That small investment of 6000.00, has turned into hundreds of thousands of dollars. My sister decided to rent. She is still renting today. Do you think, if she could go back, that she wouldn't elect to buy something years ago. She is subject to high rents, and has to move each time her landlord decides to sell his house. She and her children are uprooted each time this happens. I only experienced this craziness one time when I decided that no landlord was going to take control of my life, again. I bought, and I'm happy I did.

Today, it's a great time for first time home buyers to jump into the market--who want to own a home and can qualify. Why? Because, they actually can. We don't know what tomorrow brings. Perhaps lower house prices, perhaps higher. Maybe lower interest rates, maybe higher. If you want to buy a house, and you can, buy it. If you are looking to flip it and make "bank" in two years, you will probably be disappointed. But, if you are buying a home to live in, you will enjoy the fact that you are in control of your life, not a landlord, and no one will be increasing your rent or selling the house you and your kids have grown accustomed to, without your consent. And, get a 30 year fixed loan! 4% used to be the teaser rate, now it is the rate. Lock it in!!

PS: When I bought my first house, interest rates were 13.5%. Everyone said I was crazy. They don't say it now...now they say, "Wow, you were so lucky to get into the market way back then..."
2 votes Thank Flag Link Sat Oct 1, 2011
This is a great question. I think we need a serious dialogue about this potentially crippling issue. The lower interest rates will certainly hinder the recovery of the housing market. It may generate a ton of refinances for those who are able to appraise their current homes, but banks will slow down lending. The local banks will definitely stop lending portfolio money. Interest rates can't stay at this level for long, and banks realize that they won't. So, they'll pull back and wait a few years when rate climb back to the level they should be at. I think between 5 - 6% is the right number for banks to make money and borrowers to line up for loans....

Only time will tell...
2 votes Thank Flag Link Sat Oct 1, 2011
Mack how long have I been preaching this? That housing is shelter, a place to raise your family and a forced way of savings. I quess if you want to be technical this is a form of investment, but not what we have grown to take the word investment as, growth. Although it has appreciated, for those of us over 40. The bubble was due to speculation, people using their homes as piggy banks and poor policy by Barney Frank.

How many of us know families that had 5 or more kids growing up in modest homes 1,200 to 2200 sq ft. Now the young couple or family wants 3000 sq ft to 30,000 sq ft
2 votes Thank Flag Link Thu Sep 29, 2011
- We need to disabuse people of the notion that housing is an investment.

I'm with you. In fact, I think people need to understand the distinction between "investment" and "speculation!"

- The First Time Buyers I work with here in NY Metro Region NEVER breakout a spreadsheet or quote statistics.

People around the country need to read that, Trevor. I'm a native New Yorker, and people who buy in New York have to earn pretty darned good money - you just can't buy on $27,500 a year there.

Not only do they make good money, but they are sophisticated. Many are business people, or work in finance, and my experience is the same as yours - they want to know, what's it going for, what can I get it for? Not, what will the appreciation be in three years.

Smart, sophisticated people in what is probably the strongest housing market in the country, an international capitol of capital. Maybe there's something for the rest of the nation's homebuyers to learn from this!
2 votes Thank Flag Link Thu Sep 29, 2011
WOW! What a great debate! I'm loving the coherent arguments and the distinct absence of nasty troll-fueled flaming! (I'm an old CraigsList Housing Forum participant and back then, a discussion like this quickly devolved into flames).

Linda and Mack, WOW. Luv your discussion points! Michael, while your analytical point of view is so very intelligent, I think IMHO, that you're missing the point about housing: people want a roof over their heads, one they OWN. The First Time Buyers I work with here in NY Metro Region NEVER breakout a spreadsheet or quote statistics. They focus on the monthly payment and whether or not they like the house. They sure as heck aren't thinking about the statistical anomalies in real estate markets and prices over the past 30 years.

Might I toss a wrench in the works, as it were?

We need to disabuse people of the notion that housing is an investment. The whole "ROI" point of view is so "BOOM." ("Real estate always goes up!" the BOOM pundits were fond of saying frequently and often!). Real estate is about housing, not how much your house is worth years from now. Intangible benefits people! Buy a home for those reasons, the intangible ones, not because you're afraid of paying too much! Sheesh!

Trevor Curran NMLS#40140
tcurranmortgage
2 votes Thank Flag Link Thu Sep 29, 2011
When I started in the business as a Mortgage Banker 22 years ago my manager taught me that rising interest rates where a good thing for real estate and that static rates were BAD.

When rates stay static, or, worse, with the potential (in the minds of consumers) to go lower still, then those "fence sitters" will just hang out there on the fence. It's basic psychology: waiting around might provide a better future opportunity for lower costs.

When rates go up, OTH, fence sitters need to jump into the market and make a buy decision. They don't want to lose out on the current low rate opportunity. So, they act before rates rise and reduce their buying potential.

BUT, IMHO, that's not what's hurting housing the most right now.

1. Worries about the economy. I meet many Buyers who truly want to buy a home and they are qualified for mortgage financing. But they won't pull the trigger because of worry about the economy.

2. Sellers with unrealistic price expectations. This is typical of a developing Buyer's market (and this Buyer's market is developing OH SO SLOWLY!). I'm referring only to Sellers who are in a clear position to sell (that is, they're not short sale Sellers or REO sellers). These Sellers refuse to listen to their Realtors' advice and price to sell. Instead they sit tight on their unrealistic price expectation and lose out when a good Buyer comes along offering a fair market price for the house.

Trevor Curran NMLS#40140
tcurranmortgage
2 votes Thank Flag Link Thu Sep 29, 2011
Neither do I, Linda.

There is no such thing as a "free" market, and people who aren't players need to get this. Oil prices would be different if the US military wasn't keeping the shipping lanes safe, fer goodness' sake.

As it is, full-time economists get things wrong half the time, so the armchair economists really should just kick back and enjoy the ride or get out of the amusement park. Standing around like you're qualified to criticize is like standing next to somebody at the Louvre who thinks Monet's ponds are fuzzy.
2 votes Thank Flag Link Fri Sep 16, 2011
- It shocks me how many people believe the opposite of the above and how real estate pros continue to lie about this fundamental fact

Prove it.

No, I'm serious - if you want to call us liars, then at least have the courtesy to show us how what "we've been saying" is a lie.

There is over sixty years of data showing the average price of homes nationwide and interest rates nationwide, you really need to verify this for yourself.

Here's a hint - high interest rates correspond to high inflation rates, and the nominal price of homes has historically gone up with inflation. Again, verify this for yourself. You can look it up.
2 votes Thank Flag Link Mon Sep 12, 2011
No, but if they ticked up a bit, some Buyers might leap off the fence!
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2 votes Thank Flag Link Mon Sep 12, 2011
Take mom's advice.... "for heavens sake... don't pick at it or it will never heal!"
1 vote Thank Flag Link Sat Oct 1, 2011
Not sure how low rates would hinder the housing recovery. If the rates were higher and the cost of the money increased selling prices would certainly go down.
1 vote Thank Flag Link Sat Oct 1, 2011
I don't think it's the interest rates that are hindering the housing recovery at all. If fact, where would the housing market be right now if interest rates were high? The core problem with the housing market in my experience is the banks increasing the lending standards to the point where it's difficult for folks to qualify for loans and more difficult to get homes to appraise. While I understand the banks are finally doing their job, I think we are seeing an adjusted realty from what we saw 5 years agos, which was a bubble. Of course, the overall economy and factors like unemployment also play a role by reducing the number of potential buyers in the market. It's a very complex issue and I don't mean to oversimplify, but it will take years to recover. Despite a slower pace of overall sales, we are still selling homes in the Charlotte, NC market, although mostly foreclosures and short sales.
1 vote Thank Flag Link Thu Sep 29, 2011
Unless we are in an inflationary period, lower rates is a great thing. Even though I am a real estate broker in Boise, Idaho; I still benefit indirectly when someone refinances due to lower rates instead of buying a home from me.

If they bought a home from me, I would get the commission which is a direct benefit. However, the indirect benefit comes when they now have more disposable discretionary income to spend in my local economy.

What is hindering the economy the most is when banks agree to sell properties below market value for a "quick sale" which in turn impacts that neighbor, etc., etc., etc.. Chasing the market down is not rushing to the right solution!

Discounting "merchandise" works when you are closing out a fixed commodity (i.e. last years Turbo Tax programs or the iPad now that the iPad 2 is out).

Take FHA's HUD foreclosures for example: they make several major mistakes in their marketing:

1) In order to save a few hundred dollars in watering and maintaining the yard, they let sprinkler systems freeze and break and let landscaping burn up and die;
2) they tell appraisers to appraise the property for a 30 day sale (not fair market pricing). If a bidding war occurs and the bids go up to but don't exceed fair market value, the buyer now has to bring in cash over and above the (below market) appraisal price. Instead, they should appraise the home at fair market value and list it for 90-95% for a quicker sale if that is what they wanted.
3) They sell the property as - is many times precluding getting financing without doing a 203k or rehab loan. It is sad that a bank will lend money to buy a distressed property and agree the repairs will add value and therefore lend you the money for the repairs but then not be wise enough to do the repairs in the first place!

There are other things I could cite, but the reasons behind a lagging housing recovery is not tied to low interest rates!
1 vote Thank Flag Link Thu Sep 29, 2011
Some see incurable, others see curable. Some see expensive, some see value.
1 vote Thank Flag Link Mon Sep 26, 2011
Well, then, bgk, we have a mutually beneficial relationship. I have rental property, and I will be pleased to have the mortgages paid off on them.
1 vote Thank Flag Link Sat Sep 24, 2011
Sure, Linda. "Gut instinct" is not the same as "anecdotal evidence."

I don't mean to pile on here, I think that there's a boundary where one's opinion can be contained without denigrating another's opinion. So, if somebody were to assert something, it wouldn't necessarily be a personal attack to refute that assertion with evidence; it probably crosses the boundary when, as I did, you set out to "set somebody straight."

I like data people, I like analytical people, and I like people who appear to take the information and run with it without holding all the details in mind.

For example, agents with interest rates. How many of us remember what our favorite lenders email us on a daily basis? I don't. They're low. You're the customer? Check in and see how low. They're low. Should I know whether they're 3.875 or 4.125? Maybe, but I don't. So freaking what?

People who are "on the fence" - here's my advice: don't buy. Don't buy. Do not buy. Do you need to read it another way? DO NOT BUY. End of story.

Buy because you want to, because it makes sense for you to do so. Will it be better next year? We don't know.

Life is short. Seriously short. However old you are today, you will be a year older next year, and you won't get that year back. Only YOU can decide whether you should buy your own home today, at today's prices and interest rates, or not.

Anything can happen next year. I mean, anything. We could have war, sudden prosperity (you can't see it coming, because it's around a corner), you never know.

But you do know that you'll be one year older. Do you want to pay somebody else's mortgage - maybe the nice old landlord or landlady, or the investment group behind the management company behind the property manager that you send the rent checks to - or do you want to start paying off your own. Sure, things may be better next year, five years from now, ten years . . .
1 vote Thank Flag Link Fri Sep 23, 2011
Yes, Mack,

There is much to be said for "gut instinct". Great cops rely on it daily.

"In many markets, there was no such "inventory buildup" in the late 1980s. You can look it up." Absolutely correct and thanks for pointing that out.

I will be the first to admit that I am not, nor do I completely understand that thinking behind those that base every thought and feeling on charts, graphs, facts and figures. I've seen it fail too many times. And while I wholeheartedly agree that there is a need for this type of knowledge and this type of thinking, I believe it is highly overrated.

I appreciate your comment on experience and I believe it speaks volumes for your own intelligence.

And although I enjoy a few college degrees of my own and I readily admit that they have helped my throughout my lifetime, I can say without question that life's experience - whether it be personally or professionally has played a far bigger role in my success in life and in business.
1 vote Thank Flag Link Fri Sep 23, 2011
Michael,

With all due respect, I am a bit offended by your term "logical fallacy" to describe my views..........or as you stated, my "gut feeling". My "professional experience" is what I base my opinion on. Your depiction of the era between 1994-1995 has absolutely no bearing on the interest rates of the early 1980's.

Inflation is what drove those interest rates through the roof and we are going to experience that again. I saw rates in our area of 14-18% on average going as high as 20 some percent for high risk. And again, I repeat, the question here is very simplified, "Does anyone else think that artificially low interest rates are actually hindering the housing recovery?" And I stand by my answer. I am a listing and buying agent and I am telling you what my buyers are conveying. Many of them are first-time home buyers and very young. When the housing "bubble" was in full swing, they were just enjoying the first set of adult mollers. Most have no idea how things were or how things could be. They continue to express to me that they are waiting for things to get better (lower housing prices and lower interest rates) HUH?????

I am confident that when those that are IN A POSITION TO PURCHASE a home understand that the rates will go up and when they do, there is no telling where they will cap out at, they will begin to make their move.

YOU SAID, "2004-2006 : Unemployment remained low while credit availability grew to record levels from both our central bank's easy monetary policy and exotic financial instruments that dis-engaged risk-exposure and reward for banks. " And I agree completely with that statement most especially with your term "exotic financial instruments". I called it creative financing and I begged my clients not to do it. Some listened and some didn't. I have written a blog on this very subject, the acronyms are SIVA, SISA, NINA and No Doc.


How about SIVA(Stated Income Verified Assets) - Where a borrower was allowed to state their income as loan as they could show they ad the required amount of assets.

Then there was the SISA (Stated Income Stated Assets) - Similar to the SIVA in that the SISA allowed the borrow to state both their income and assets without any verification of either.

Or how about the NINA (No Income No Asset) - Nina allowed a borrower to qualify for a loan on the strength of his credit score alone without even stating income or assets.

Maybe the No-Doc - (Very similar to a NINA but with some lenders did not even require employment verification.

At the risk of repeating myself to the point of adnauseam, there are no guarantees in life but for those that are longing to own a home I will repeat it one more time. You have to live somewhere and in many instances potential buyers are paying monthly payments to someone. Why would you continue to pay your landlord's mortgage when you could be paying your own?
1 vote Thank Flag Link Fri Sep 23, 2011
How can I possibly think that rising rates would get the buyers going? Because I've lived through it once before and because I work with buyers who continue to express to me that they are waiting for the interest rates to drop even more. As human nature would have it, if we think there is something better coming down the road, we will wait. Unfortunately, for many, by the time they realize it, the opportunity will have come and gone.

I agree that not everyone is in a position to buy a home right now and I am not advocating that. The question is, "Does anyone else think that artificially low interest rates are actually hindering the housing recovery?" and I stand by my answer, yes they are. And I do not care for the term, "artificially low" and I do not agree with that terminology.

I stand by my answer and when it happens, I'll still be here.
1 vote Thank Flag Link Tue Sep 20, 2011
How could you possibly believe that higher interest rates would help the housing market? This is the time to buy, rates are historically low, and prices are down in most parts of the country. The problem is too many buyers listening to unqualified talking heads who only have fear to spread as this is what they get paid to do.

When you start hearing that the population is decreasing and that more habitable land has been discovered on the planet then and only then should begin to wonder if there will be a continued demand for housing. Any economist who says you should rent rather than buy is probably living at home with their parents and not paying them any rent.

If you know that you're going to be living in the same area 4-5 years from now and could buy a home but are "Sitting on the Fence" then you can rest assured your landlord loves you. afterall your buying the property for them.

Get off the fence and make your move.
1 vote Thank Flag Link Tue Sep 20, 2011
No.

I don't think that the low interest rates (whether it's artificial or not is another issue) are hindering the housing recovery.

If rates were higher, then homes would be less affordable. And, in a free market, prices would drop as interest rates rose in order to maintain that balance in affordability.

But--while higher rates would make homes less affordable--we've also seen historically that there isn't such a clear and direct relationship. After all, the argument would then have to be (as it has been) that, as rates drop, prices go up to maintain that affordability balance. But as we've seen in the past couple of years, rates falling by 50% haven't resulted in rising prices.

And when interest rates were 12%, 14%, or higher, values didn't drop by half, either.

What we saw then was that other forms of financing (equity sharing, owner financing, wrap mortgages, etc.) became more popular.

Plus, there are many other factors affecting the market. Buyer psychology is a big one. Employment (or lack thereof) is another. The geographic imbalance of available housing and where the people are is another. (Example: Detroit.) Lenders' willingness to make loans is another. As noted below, a lot of people today just can't get loans.

So, let's step back a moment. What would it take to spur a housing recovery? More consumer confidence--both in the general direction of the economy and in the direction of the real estate market. Interest rates have little to do with that. Employment is a big driver.

Affordable housing. With today's interest rates and the price declines, we pretty much have that today.

Lenders' willingness to make loans. Now, there's a possible problem. Still, I'm glad we aren't back where we were a few years ago where they'd make loans to anyone and anything.

So, it looks like it's largely an issue of consumer confidence. If someone buys a home today, will they have a job in a year or two? If they have a job, what about the value of the home--will it have declined by 10%, 20%, or more? If they want to sell--or need to sell--in 6-7 years, will they be able to? Those are the issues that I suspect are keeping a lot of buyers out of the market.

As for the rates being "artificially low," do you really think the demand for money is all that great? I'd suggest, instead, that the few areas that are charging high rates (credit card companies, for instance) are charging rates that are "artificially high." But we know that large corporations are sitting on huge piles of cash that they're not investing--either in financial instruments or in new plants and equipment. Some cite "uncertainty" over government policies. Others cite "uncertainty" over the economy. (Kind of sounds like the mirror image of a lack of consumer confidence.) So those corporations aren't in the market borrowing, and that's keeping rates low.

Meanwhile, despite the debt ceiling issue/crisis of a few months ago, have you seen what other countries are doing? And what American consumers are doing? They're pouring money into Treasuries. Interest rates aren't solely controlled by the Fed; they're also a response to what U.S. and foreign investors perceive to be relative risk. The lower the risk, the lower the interest rate. So I think the argument that interest rates are artificially low is pretty shaky.

As for the few comments below that consumers are waiting for lower interest rates . . . nah. Lower than they've been in 40+ years? That's not the reason. Are they waiting for lower prices? As I said above, I think it's really that they're afraid of lower prices. And that, again, brings us back to consumer confidence.
1 vote Thank Flag Link Fri Sep 16, 2011
Don Tepper, Real Estate Pro in Fairfax, VA
MVP'08
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Thanks, Linda!

The other thing is that high interest rates correlate with inflation, and while the "inflation-adjusted" value of the properties may decline, historically, the nominal, "face" value of homes increases. Which homeowners like, because they will pay their mortgages off with cheaper dollars.

- These were average, every day working people that could not have saved this amount of money no matter how frugal an investor they may have been.

I think that deserves to be repeated, because the academics / students who follow real estate blogs kind of miss this point. The gal making $55,000 isn't going to take the $300 monthly difference between owning and renting and putting it into an index fund. She's already contributing to her IRA, Roth, or whatever, and she will probably find other things to do with the money.

It should also be surprising that you can, in some markets, buy some properties for less than the rent. In a healthy economy, there is a premium to be paid for ownership - I think the GRM in Manhattan is something like 300. So let's not GASP at the thought that it's cheaper to rent than to own. You have fewer rights as a renter than an owner, it dang well should be cheaper!
1 vote Thank Flag Link Fri Sep 16, 2011
Good points, Mack,

Hey, don't I know you from somewhere? :)

I would like to clarify though, that I don't expect home buying to "spike" quickly, but I do believe that it will get many off the fence. When I tell people that in the early to mid 80's average rates in this area anyway were between 14 and 18% and you had to have really good everything to qualify for 14%, they look at me like I'm crazy. It could happen.......

Just say'n
1 vote Thank Flag Link Fri Sep 16, 2011
The average that a person stays in a home is actually 5-7 years. But the average mortgage loan is 20-30 year fixed. The money a person spends on rent can never be recovered. It's just gone forever.

My parents bought their second home for $18,000 back in the late 1960's. It's highest assessment about five years ago was approximately $220,000. It is since dropped as low as $189,000 but just reassessed to $192,000. Back on the way up. We are trying to keep them in their home until the market completely recovers and even though that is not likely, they will still have approximately $171,000 to put toward a senior housing or something similar if need be.

Now, PLEASE, all of you economic majors out there, do not bounce on my post with all of points of the amount of interest they paid and so forth. These were average, every day working people that could not have saved this amount of money no matter how frugal an investor they may have been. And then there is always the chance that they could have lost in that as well.

To each his own, but I stand by my answer.
1 vote Thank Flag Link Fri Sep 16, 2011
Linda.

You make some strong points and I agree with you. I too have several buyers who are "waiting for rates to drop" and for prices to drop, because they think we are not at the end of the downslide. But I can only discuss it to a point once they have made up their mind. I like your idea of showing people the actual numbers from the rate differences.

As to Louis' statement about short sales selling for less than foreclosures, I do not agree. I have had clients make offers on short sales that were not accepted; these homes ended up foreclosing and sold for less months later on the market. I think it IS area dependent, and here in coastal San Diego our market is still strong, comparatively speaking. We do not have as many short sales as some areas, but if we sell these properties sooner rather than later I think it will help stabilize the market in the long run.

I also believe that the majority of short sales involve situations where the owners are good people - maybe they lost a job, are going through a divorce, or took a pay cut, maybe someone became ill. I have seen a lot of these instances. These people do not want to short sale, but they have been turned down for loan mods and cannot afford to stay in their homes - they are devastated.

I have mixed feelings about government involvement, but some of the programs, like HAFA, have actually helped not only homeowners, but neighborhood stability and value. With one of four homeowners underwater we need to do something to soften the blow.
1 vote Thank Flag Link Fri Sep 16, 2011
BJK

You continue to blame realtors when in fact it is left up to the buyer to make the ultimate decision to buy or not. Based on hopefully their doing their homework with the assistance of their agent. Affordability - yes, lower interest rates and values lower than they were - yes. Does that mean that values can't go down - no Does that mean its still not an opportune time to buy - no. But buy for the right reason. ITS WHERE YOU WANT TO LIVE - Don't expect apprecation - just a forced way of savings, with tax breaks - Yes hopefully it will go up, but you can't count on it nor can you count on it going down.

Life has risks, make the most informed decision you can.

Do yo invest in the stock market? Do you own Gold? Do you listen to advise given in those areas?

The price of real estate is never over priced, it is purchased at whatever a willing, ready and able buyer is willing to pay. There are people that make good decisions and bad ones. As you know at least in our Massachusetts real estate market, as there still are jobs, much of the run up was do to people that should not of been buying in the 1st place, getting 100 - 105% financing, and then there were those that use their homes as piggy banks, solely based on the HOPE of appreciation

Nice to have loan ratios of 60% but were does that leave 95% of the home buyers, especially 1st time buyers. Guess based on your rational. That if one has saved only 10000 or 100000 then home values would be much lower - wrong - you'd have more investors owning them with higher rents.
1 vote Thank Flag Link Tue Sep 13, 2011
I wish it were the rates that were slowing the recovery. Your argument that the goverment should step aside I agree with. But if rates go up as I feel they should, buying power is reduced as is prices, but that still does not create jobs or income that one needs to be able to buy (whether with cash or a mortgage) What will happen if higher rates force values down, investors will buy (they have the cash or ability to get a mortgage) rental rates will vary based on the area, demand, and what if any economy is in that area. My other concern is higher rates will put more of a burden on the individual towns, cities and states that are already finding it difficult to keep up essential services and teachers.
1 vote Thank Flag Link Fri Sep 9, 2011
I don't.

A rise in interest rates might chase a few people into the market. But, the level of demand would return to what it was if everything else remains the same.

On the Fence, I think I understand the argument. If rates remain at these levels, there is no urgency to buy. There is something to that but people buy homes because they perceive it as a need. Many people want to buy to start families. Others want the tax deduction. And a good number of people simply hate renting or living in multi-family housing.

Artificially low rates can influence more buying. The big obstacle today, however, is not affordability so much as a lack of confidence. Someone who has watched a number of co-workers leave their company under a layoff is not a good prospect. The confidence thing is more involved than that. But that little bit of worry about job security is holding back a lot of buying.

When rates start moving up, they will begin to affect affordability. A point or two can drop a significant number of people from the market. In an expanding economy, 12 percent mortgage rates are not so worrisome. People purchase with plans of refinancing later.

In the current situation, the market will languish until the economy begins to expand significantly. If this expectation pans out - and that seems to be part of the Obama plan - housing will show clear signs of a recovery. Those first signs could come as early as next year. But a full recovery may be years away.

Runaway lending, excessive spending, banks with too many problem loans on their books - it all has to get sorted out.

Meanwhile, a larger number of people are stuck in their mortgages until that day when prices move much higher.

Lower rates will lead to more re-financing by this latter group. That puts more money in their pockets. They are more likely to spend - so the theory goes.

We'll see.

SuZ
PML
of Longmont, CO
1 vote Thank Flag Link Fri Sep 9, 2011
Ray if rates go up prices come down, simple real estate.

Christine its always a good time to buy. But you have to buy right and for the right reason. HOMES ARE NOT INVESTMENTS (unless you rent them out) They are a forced way to save, a tax deduction and hopefully if you made a wise choice when you bought will hold up or go down equally with the market but will still be marketable.

Allan I don't believe there are those on the fence. I believe that those you are talking about mostly can't afford a home (income, downpayment, credit) have homes they are upside down on or have been foreclosed on. Did you see the movie perfect storm????
1 vote Thank Flag Link Thu Sep 8, 2011
It's not so much the low interest rates (and I don't think they're artificially low except read further) but the uncertain loan conditions and fico & credit scores that are hindering. From lender to lender there are a miraiad of rules & guidelines that have to be followed to the letter or no loan is possible. There are some great rates out there but they aren't widely available to many borrowers who don't fit perfectly into the "ideal" lending profile as well as the property they are interested in. The fine print is what is really hindering the housing recovery in my opinion. There are buyers at either end of the spectrum but the mid to slightly upper ranges are having issues with all the guidelines to qualify. It really only helps somewhat to have alot of entry level properties if the current inventory owners of these properties cannot work to move up & beyond. Alternatively the same is happening with people downsizing. Alot of difficulties in the 400-900K range properties in finding & qualifying buyers for these properties. Without a strong market in these areas it does hinder the whole housing market for people to move up or down the housing spectrum.
1 vote Thank Flag Link Thu Sep 8, 2011
Artificially low interest rates hurt the overall economy in generall. It is a temporary fix. It creates capital for lower return investments and creates short term capital that may not otherwise be available. Unfortunately the higher return investments suffer. Intermediate and short term recovery will be effected by the artificially low interest rates.

The artificially low interest rates prevent the housing market to naturally find its bottom in a timely manner.
1 vote Thank Flag Link Thu Sep 8, 2011
How would that be, OTF? What are you thinking here?
1 vote Thank Flag Link Thu Sep 8, 2011
Actually its the opposite. The artificially low interest rates is actually what is keeping the real estate market afloat.

If rates were where they actually should be 8% real estate values would be cut in half. That would cripple the housing market and the economy.
1 vote Thank Flag Link Thu Sep 8, 2011
Heath,

So people that aren't buying today at the lowest rates will buy when rates go up?

I was taught when I first got into investment real estate in 1974 as rates rise, prices fall.

Math is a wonderful thing, it is constant.

What does change is supply, demand and income.
0 votes Thank Flag Link Wed Nov 9, 2011
People have been lulled into thinking that rates will always be this low. When they start to rise, you'd better have a stack of offer forms and a good pen.
0 votes Thank Flag Link Wed Nov 9, 2011
As a landlord myself, I'm with Vimy.

Yes, renting is a great option for most people at some point in their lives; where would we be without rental homes, hotels, rooming houses, extended-stay lodgings - it's great to have options.

But at the end of the day, if people have a choice, they're usually looking for reasons to pay off their own mortgage rather than mine. I mean, goodness - most university towns have at least a small percentage of students whose parents are trying to buy for them rather than have them rent!

And, of course, there are burdens to being a landlord; the community as well as the State would prefer that we work out our tenant problems rather than throwing them on the street for the community to deal with. And while tenants have their tendencies towards instability, there are certainly landlords that have failed to be responsible, too.

Also - something like 30% of homeowners are underwater, which means that 70% of homeowners are afloat. We shouldn't forget that.

Last thing - do not confuse "having an agenda" with dishonesty. People who actually accomplish things in life typically have an agenda.

All the best,
0 votes Thank Flag Link Wed Oct 5, 2011
Dear Landlordma,

I guess I hit a landlord nerve. Not my intention. I'm sure you are a fabulous Landlord. Let me ask you a question, do you own your own home? How do you feel about the fact that no one will raise your rent, or ask you to move? I can tell you, it's a freedom I enjoy, and I believe there are countless renters out there who would like to enjoy the same freedom. In fact, according to Tulia's 3rd quarter poll, 59% of today's renters want to purchase a house in the near future. It's a dream that many people share.

I'm female, obviously (my pic is posted), and I can tell you that the majority of women feel more secure when they own their own home. In fact, when a spouse dies, studies show that women do much better, emotionally, if the mortgage is paid off. I've never read studies that indicate the same is true of men, probably for several reason, but that's another post.

You judge my post harshly, accusing me of having a personal agenda. I have a public agenda, I'd like for everyone who wants, and can afford, their own home to have one. After all, isn't this the American Dream? And, yes, I'm a Realtor, I earn a living helping people sell and buy houses. Is it wrong to point out the great benefits to homeowership? Do you disparage doctors for healing people, because they earn a living doing so? Do you chide teachers for being paid to teach?? Right now, in Orange County, CA. you can buy with very little down, and have a mortgage several hundred dollars less than renting that same property. I feel I have a duty to share this information. It's helpful, and I would want someone to tell me.

PS: I love Mass. My whole family lives there. You are fortunate to live on the East Coast, it's just beautiful, there.
0 votes Thank Flag Link Wed Oct 5, 2011
Yes I believe so...It is actually much harder now to get financing on an investment property as well. Banks would lend more if they had more to make in the form of a higher interest rate.

To Vimy -
landlords dont try to "take control of your life." All we want are reliable tenants. If I have a good tenant I usually dont even raise the rent even when the market dictates I should. In Mass if you get a bad tenant you literally have to pay them to get out of your property. If you try to get them out by a huge increase in the rent you may be sued for your actions. Another comment "high rents" - laughable. Rents fluctuate to the proper amount based on supply / demand and the attributes of your property. Try to charge a "high rent" and I promise that you will have a vacant property

Dont try to paint entrepreneurs who invest in rental properties as venomous to further your agenda. Renting is a good alternative to buying and may be a better choice for the majority of people (who may have to relocate in the next decade or cant afford the financial risk of owning.)
0 votes Thank Flag Link Wed Oct 5, 2011
In my opinion interest rates is helping in the way of refinances for the people that have bought homes in the years interest rates were higher or they didnt get a fixed rate mortgage. But when you look at the facts is it helping our housing recovery, I think it is just one bolt to a much bigger machine.
0 votes Thank Flag Link Sat Oct 1, 2011
Just want to say this is a great debate.....

At the end of the day, I think the goverment should let markets fall where they may. Trying to "manipulate" or "stimulate" markets is a band aid to the situation.
0 votes Thank Flag Link Thu Sep 29, 2011
The policies of our current presidential office holder are hindering markets of all kinds in this country.
0 votes Thank Flag Link Thu Sep 29, 2011
Great idea Linda - Have everyone send it into the Goverment to reduce the Debt.

Since you want to do it on the internet, lets make it global and we'll have a surplus.
0 votes Thank Flag Link Thu Sep 29, 2011
Consume consume consume

CONSUME ONLY WHAT YOU CAN AFFORD.

Let it shrink, get spending under control, stop the bailouts,

BE RESPONSIBLE.

Low rates aren't creating jobs.
0 votes Thank Flag Link Thu Sep 29, 2011
I had this discussion with my 16 year old grand daughter. She asked me if it wouldn't help if we picked a special day for every person in America to go out and spend even $10.00 (more if they can) on an American made product and send it out on the internet so everyone does it on the same day.

Food for thought?
0 votes Thank Flag Link Thu Sep 29, 2011
No! We need low rates until major policy changes allow the economy to build confidence for ALL concerned with the weak economy to start spending. We are a consumer culture/economy period! That being said and it is the truth, we need to embrace it AND CONSUME, CONSUME, CONSUME. This is a critical tool to keeping market activity alive for the shrinking "middle class" until other more pervasive changes are in place and driving up overall market confidence which will get all levels of our economy CONSUMING! As a side note: The banking industry always makes money hand over fist no matter what is going out there so do not feel bad for them.
0 votes Thank Flag Link Thu Sep 29, 2011
Not sure what the question has to do with medicine..but the most analogous situation is aggressively treating an incurable condition with an expensive remedy that is unlikely to improve the outcome.
0 votes Thank Flag Link Mon Sep 26, 2011
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