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Rising interest rates mean another BIG crash in housing

A week ago, we provided a simple, irrefutable analysis of "What The Recent Surge In Rates Means For Your Home Purchasing Power" in which we demonstrated how the average home affordability goes down (due to the declining marginal purchasing power in a rising rate environment) as interest rates (for mortgages and all rate-sensitive products) go up. What this means is that all else equal, absent a massive increase in disposable income (especially when the opposite is happening to disposable income), the average home affordability plunges as rates go up.

So here is the benchmark price-rate curve updated for a reality, in which the national average 30 Year fixed has exploded from 3.40% on May 1 to a whopping (for the New Normal) 4.875% as of today for Wells Fargo customers. The matching affordability collapse: from $450K to $378K, or a stunning 16% equilibrium price drop in under two months!

by Anonymousreply 2203/18/2014

Our Banker overlords are trying to crash the economy again. Frankly, I think the rates have been too low for a long time. The default risk alone should have demanded a higher rate.

by Anonymousreply 106/25/2013

But it's DIFFERENT this time!

by Anonymousreply 206/25/2013

I know this is a TERRIBLY exciting time to be a Libertarian, dear. However. You really have to stick to one topic to compulsively masturbate over. Your spam blasts are getting beyond annoying.

Now, which one are you going to circle jerk over - NSA or the Impending Collapse of the Banking System/OMG OMG OMG the Euro's collapsing Buy Gold Now?

A little focus would do us all some good, and take a little stress off the DL servers.

by Anonymousreply 306/25/2013

Somehow, this is Bush's fault.

by Anonymousreply 406/25/2013

I don't know what any of this means, but you are forcing me to believe it!

by Anonymousreply 506/25/2013

As usual, the OP won't link to the essay he's quoting (link provided below). And, as usual, the essay he's quoting is basically meaningless. The fact that as interest rates go up the size of house that people can afford goes down warrants a big "duh." And, as usual, the OP is predicting doom, gloom, and economic armageddon even though the data don't warrant such predictions and even though he's been totally and consistently wrong for the past half dozen years at least.

In other words, business as usual for the OP.

by Anonymousreply 606/25/2013

Yeah? Are we to have expected that mortgage interest rates would remain in the 3% range indefinitely? Against economic indicators that suggest an improving economy?

Instead of crying that "the sky is falling", OP would have been more accurate to say that even with a modest ascendancy in rates, THIS clearly remains the fucking Golden Age of bargain 30-year fixed-mortgage rates.

Some perspective at chart:

by Anonymousreply 706/25/2013

Honestly, OP, this is really dumb. R6 is exactly right.

by Anonymousreply 806/25/2013

By the way, did anyone catch the sleight of hand that the original article employed? Quoting:

[quote]the national average 30 Year fixed has exploded from 3.40% on May 1 to a whopping (for the New Normal) 4.875% as of today for Wells Fargo customers

The starting point was the national average; the end point is a rate specific to Wells Fargo. One of these data points is not like the other....

by Anonymousreply 906/25/2013

It is worth calling out that mortgage rates have spiked recently, even though they remain at historically low levels. If that spike were to continue at the current rate, as the folks at zerohedge and the OP are salivating about, then yeah, there would be some pretty serious consequences to the economy.

The trouble for the OP is that there is little reason to believe that such circumstances will occur, at least at a rate that would cause economic distress. After all, everyone expects mortgage rates to rise. When they're lower than they've been in decades, where else are they going to go?

The common expectation is that the "natural" level for the 30-year mortgage rate is in the neighborhood of a little over 5%. If the current rates level out, as most financial experts predict and expect, then you will see a slow but steady increase to that natural level.

by Anonymousreply 1006/25/2013

The Federal Reserve has been buying the vast majority of new USTreasury bonds, and a large fraction of USMortgages. The mere hint that they might let the "evil free market" find a natural interest rate for those Tbills and Mortgages has panicked the (bankster manipulated unfree as hell)market.

That should tell you how precarious this system really is.

-------

Let me explain, in simple terms, QEinfinity.

Imagine you had a business and had 5,000 lines of credit---

CREDIT LINE ONE- 4,000@ 30yr @6%

CREDIT LINE TWO -800@ 10yr @4%

and

CREDIT LINE THREE- 200@ 2yr @2%.

You hit a rough patch, and need to refinance. That 6% rate is killing you, so you sell some of the 30yr and refinance at 2yr rates. You hope that reducing your long term borrowing costs you will be able to "grow out" of this rough patch.

After a year, your credit profile is this---

CREDIT LINE ONE- 200@ 30yr @5%

CREDIT LINE TWO- 800@ 10yr @3.5%

CREDIT LINE THREE- 4,000@ 1yr at 1.25%

You have succeeded! Your credit costs are much, much lower!!! Yahoooo, big party!

But remember, your company is the biggest in the world, and can temporarily control these rates, but exogenous shocks could cause problems. You can't fool Mother Nature.

Suddenly Muthafucking Nature (aka the free market) causes interest rates to rise and those 4,000 1yr @1.25% must be rolled over and the interest rate is 5%, or 10%.

Suddenly your payments rise, hard and fast.

That's what happening to the USGov today.

Research Austrian economics, and you will understand why the current system is doomed.

Maybe tomorrow. Maybe 10 years from now. But it will die, and the little people will suffer.

by Anonymousreply 1106/26/2013

Moron, you're spamming again, which means that these threads will likely get closed or deleted again. Do you never learn?

[quote]The Federal Reserve has been buying the vast majority of new USTreasury bonds, and a large fraction of USMortgages.

False.

[quote]The mere hint that they might let the "evil free market" find a natural interest rate for those Tbills and Mortgages has panicked the (bankster manipulated unfree as hell)market.

False.

[quote]That should tell you how precarious this system really is.

Not really. It just tells us how ignorant you are.

[quote]Let me explain, in simple terms

ROFL.... Sadly, that's all you're capable of.

Rather than wade through the idiotic drivel that doesn't even rise to the level where it needs to be debunked, mostly since it has nothing at all to do with what's going on at the Fed, I will simply note that the Fed has done this literally dozens of times before. And each time, morons like you insisted that the whole thing was going to collapse. People like you have been predicting economic Armageddon for 100 years! Shouldn't we have seen that by now?

None of your personal predictions has come true in the half dozen or so years you've been spamming DL. Does it never occur to you stop and wonder why? And to rethink your philosophy since it is so obviously flawed?

Yeah, I didn't think so. Oh, well....

[quote]Research Austrian economics, and you will understand why the current system is doomed.

I did. And I giggled.

[quote]Maybe tomorrow. Maybe 10 years from now. But it will die, and the little people will suffer.

No it won't. As I said, morons like you have been making these predictions since the creation of the Fed. Ron Paul made similar predictions in the early 80s. None of these predictions has ever come true. Neither will this one, just like none of those predictions of yours quoted in [R17] has come true. Don't you ever get tired of being wrong?

by Anonymousreply 1206/26/2013

R10-

When interest rates go to 10% the USGOV will be paying 100% of discretionary tax revenue just on interest payments.

by Anonymousreply 1306/27/2013

R12-

Bernice from Designing Women.

by Anonymousreply 1406/27/2013

[quote]When interest rates go to 10% the USGOV will be paying 100% of discretionary tax revenue just on interest payments.

And when flying unicorns fly out of your butt, the USGOV will be paying 0% of discretionary tax revenue just on interest payments.

Each of these statements is equally true.

by Anonymousreply 1506/27/2013

Still waiting for those "rising interest rates" and that "BIG crash in housing."

Oh, and that "Weimar-level hyperinflation," gold prices climbing to 20,000 an ounce, a complete economic meltdown and all of those other things you've foolishly and incorrectly predicted.

by Anonymousreply 1602/18/2014

It's reasonable to state that, as interest rates rise, the price of housing will have to go lower so that people can afford the monthly payment. But that doesn't equal a big crash.

by Anonymousreply 1802/18/2014

Still waiting for those "rising interest rates" and that "BIG crash in housing."

Oh, and that "Weimar-level hyperinflation," gold prices climbing to 20,000 an ounce, a complete economic meltdown and all of those other idiotic predictions.

by Anonymousreply 1903/18/2014

Be nice to the Libertarian Idiot, he's busy right now persuading the world to just leave Russia [bold]ALOOOOOONE[/bold]!!

by Anonymousreply 2003/18/2014

Residential real estate should not be an investor commodity. That's an American fuck-up.

by Anonymousreply 2103/18/2014

Interest rates remain very low by historic standards. Inflation is low too. And the Fed is tapering.

by Anonymousreply 2203/18/2014
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