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Feds raise US interest rates again

Razorguns

Razorguns

Well-known member
Ha ha!

Wonder what this'll do to those lovely house prices now.

http://money.canoe.ca/News/Economy/2005/06/30/1112259-ap.html

WASHINGTON (AP) - The U.S. Federal Reserve boosted a key interest rate for a 10th straight time Tuesday and signalled that more rate hikes were likely to prevent a rebounding economy from stoking unwanted inflation.

The action pushed the Fed's target for the federal funds rate up to 3.5 per cent, the highest level in almost four years.

The move was certain to be followed by an announcement by commercial banks that they were increasing their prime rate, the benchmark for millions of consumer and business loans, by a similar quarter-point.

....
 
my parents just bought a home this weekend, how soon do you think before house prices fall? Wonder if it'll atleast retain current value.
 
My parents just bought my sister a Condo.

Looks like Greenspan is protecting his ass before he retires.
 
Razorguns said:
Ha ha!

Wonder what this'll do to those lovely house prices now.

http://money.canoe.ca/News/Economy/2005/06/30/1112259-ap.html

WASHINGTON (AP) - The U.S. Federal Reserve boosted a key interest rate for a 10th straight time Tuesday and signalled that more rate hikes were likely to prevent a rebounding economy from stoking unwanted inflation.

The action pushed the Fed's target for the federal funds rate up to 3.5 per cent, the highest level in almost four years.

The move was certain to be followed by an announcement by commercial banks that they were increasing their prime rate, the benchmark for millions of consumer and business loans, by a similar quarter-point.

....
Click to expand...


You did. But in a sense you're right. The money just won't go to the builder.
 
SoreArms said:
so wait, are prices going up, down or neither because of this?
Click to expand...


Neither. Prices go up because of demand. These rates don't directly affect mortgage rates.
 
but don't higher interest rates mean less people willing to take on loans, affecting the number of people willing to take a loan to buy a house?
 
talked to my girl and the intrest rates on 30 year fixed increased from 5.87% to about 6.00%.

There are other programs but this is a "vanilla" fixed rate
 
SoreArms said:
but don't higher interest rates mean less people willing to take on loans, affecting the number of people willing to take a loan to buy a house?
Click to expand...


Higher interest rates are supposed to mean there's more money to be spent.
And rates change from one day to the next. There can be multiple price changes in any given day.
 
A neighbor of mine was bitching, she just put her $80,000 house on the market for $106,000 thinking that for shure she'd get a buyer. no way, not now. especially in my small town. It is about 2500 sq. ft. though

Whiskey
 
Rates do not directly effect prices. However, under current economic understanding, raising the prime rate should lower demand for housing, thus LOWERING home prices.

This is what Greenspan has been trying to accomplish for a few years now. Raise the fed funds rate, driving up the cost structure for commercial banks. Banks pass this on in the form of higher interest rates. This raises the cost of investment to companies and individual investors, in turn decreasing investment. Less individuals looking to invest is represented by a decrease in the demand for housing (a shift downward or to the left for those familiar with a basic Supply and Demand graph). This results in a lower price.

Greenspan, and anyone with any sense, knows that there is a bubble in the housing market. He doesn't want to retire having left a bubble about to pop on his watch. So for years now he has been trying to control housing prices by upping the fed funds rate. It sure isn't fear of inflation that's been driving it up.

What he and many others can't figure out is why it hasn't been working. And personally, I am holding off on buying a home because the last thing I want to be sitting on is a 300K house with a 750K mortgage. And in So. Cal, I believe that the bubble is large enough that those numbers could end up in reality.
 
Tadow said:
What he and many others can't figure out is why it hasn't been working. And personally, I am holding off on buying a home because the last thing I want to be sitting on is a 300K house with a 750K mortgage. And in So. Cal, I believe that the bubble is large enough that those numbers could end up in reality.
Click to expand...

The extended lower rates have enabled the lending industry to get more creative. 15 year ago, interest only mortgages were virtually non-existent.

Now all kinds of people have them.

Same with adjustables...much more common these days.

This "creative financing" makes it possible for people to buy "more house" than they otherwise would have and prolongs / raises the bubble.

When the inevitable correction happens, cash buyers will do well. So Cal will get hit very hard.
 
jnevin said:
Neither. Prices go up because of demand. These rates don't directly affect mortgage rates.
Click to expand...

Sure they don't.

But when more people put their houses on the market looking to "cash out" and fewer people can afford them due to higher rates....well, you see where this is going.
 
"What he and many others can't figure out is why it hasn't been working."

In part due to the creative financing people are doing. They don't care HOW they do it, they just WANT to BUY the house and they are doing it.

Interest only.... adjustable.... No/low money down... We've become gamblers, we are a greedy people. Remember the stock market bubble? Of course.
 
MattTheSkywalker said:
The extended lower rates have enabled the lending industry to get more creative. 15 year ago, interest only mortgages were virtually non-existent.

Now all kinds of people have them.

Same with adjustables...much more common these days.

This "creative financing" makes it possible for people to buy "more house" than they otherwise would have and prolongs / raises the bubble.

When the inevitable correction happens, cash buyers will do well. So Cal will get hit very hard.
Click to expand...

Yup - this is what I've been telling the people I know for a long time now. Unfortunately those people don't want to listen to the guy with the econ degree.

So Cal is gonna get hammered. More because of the amount of families and investors here that have purchased multiple homes, getting in on the insanity that has been the housing market. As soon as the bubble starts to weaken, it's gonna be a double whammy. Not only are we going to see a decrease in demand as all these investors stop buying up real estate, but I believe they also are going to start selling off the real estate they already own like it's going out of style. That means a decrease in demand coupled with an increase in supply, and prices are going to hit the floor.

You know who gets screwed there? The family that streched themselves thin to get a house at an outrageous price. It's kind of sad actually.

Of course, this all presumes that the bubble will burst. But when even the Fed can't put a calming hand on the market, I don't see any other probable outcome.
 
MattTheSkywalker said:
Sure they don't.

But when more people put their houses on the market looking to "cash out" and fewer people can afford them due to higher rates....well, you see where this is going.
Click to expand...


0% down, neg am 1st mortgage, int only second, stated income. Keeping up with the Jones' fucks people up.
 
don't the (smart) people that do this as a source of income buy a few properties when demand is low, hold on to them and sell when prices are up (like right now)?
 
jnevin said:
It would be an ARM unless it's a VA loan.
Click to expand...


Not neccessarily. My bros got high 4's on a 15 year loan with ZERO points. I'm assuming they did'nt time the bottom perfectly AND some points would have decreased it a bit more. Not saying to 4 even, but close. Good time. I got my 30 year with zero points for 5.25. Should have payed the points, as I'm staying here a while. ehh. It's all good.
 
jnevin said:
It would be an ARM unless it's a VA loan.
Click to expand...


I'm sure it is an ARM as well in which case she shouldn't be so bubbly about the deal unless she plans on not living there for too long.

However I have seen fixed loans that in the 4's so it's not impossible.

I'm fixed for 30 at 5.25 and very content with it.
 
SoreArms said:
don't the (smart) people that do this as a source of income buy a few properties when demand is low, hold on to them and sell when prices are up (like right now)?
Click to expand...


That's the general idea. But the problem is that market price already reflects future expectations (which is why internet companies that had never posted a cent of profit were trading at sky-high share prices before the tech bubble burst). The real money comes from outguessing the market - and who is to say when the bubble is going to pop?

If you invest in the stock market, you aren't going to make any money by saying "I think Microsoft is going to make some money this year." Everyone already knows they are going to make money. Microsoft even employs people just to tell you how much they think they are going to make ahead of time. You make money in the stock market by outguessing the analysts - by betting that Microsoft is going to BEAT those expectations (or you make money by having inside info - an PM me if you do!).

If you are smart enough to consistantly outguess the market... you are a very very rich person.
 
gonelifting said:
Not neccessarily. My bros got high 4's on a 15 year loan with ZERO points. I'm assuming they did'nt time the bottom perfectly AND some points would have decreased it a bit more. Not saying to 4 even, but close. Good time. I got my 30 year with zero points for 5.25. Should have payed the points, as I'm staying here a while. ehh. It's all good.
Click to expand...


You're right. I was assuming she was on a 30 year loan. There was a week or so a year ago where 4.875 with a half point was doable on a 30 yr. fixed conforming loan.
 
the US isnt the only place where a housing bubble has occurred. its underway here in australia also, though i think that we topped out two quarters ago. everyone was expecting a massive drop in prices at the end of the bubble, but it isnt happening; rather youre just getting a plataeu of dollar prices that is expected to remain for the next few years (meaning that in real terms, real value drops as inflation eats away the value of your fixed dollar value home) though you see significant drops in high end real estate.

i think the situation sucks. the days of buying a home when youre young, paying it off in 10-14 years and having it there as a nest egg are GONE. these days you buy it to control it, but monetarily, you may as well almost rent
 
High inflation is great for borrowers, sucks for lenders. So lenders will probably appreciate anti-inflationary measures.

I also do not expect a massive drop in prices. But i do believe it has and will hit a ceiling soon.

On the flipside -- more investors will now start looking at OTHER areas of RE (ie: development) for profit potentials.
 
correct me if anyone has reason to believe otherwise but it seems like the fed and the government sort of did the "quick fix" type economics to get out of the 2000 recession (pumped a bunch of money in by several diffrent means) and pretty soon we are going to pay for it.
 
Tadow said:
Rates do not directly effect prices. However, under current economic understanding, raising the prime rate should lower demand for housing, thus LOWERING home prices.

This is what Greenspan has been trying to accomplish for a few years now. Raise the fed funds rate, driving up the cost structure for commercial banks. Banks pass this on in the form of higher interest rates. This raises the cost of investment to companies and individual investors, in turn decreasing investment. Less individuals looking to invest is represented by a decrease in the demand for housing (a shift downward or to the left for those familiar with a basic Supply and Demand graph). This results in a lower price.

Greenspan, and anyone with any sense, knows that there is a bubble in the housing market. He doesn't want to retire having left a bubble about to pop on his watch. So for years now he has been trying to control housing prices by upping the fed funds rate. It sure isn't fear of inflation that's been driving it up.

What he and many others can't figure out is why it hasn't been working. And personally, I am holding off on buying a home because the last thing I want to be sitting on is a 300K house with a 750K mortgage. And in So. Cal, I believe that the bubble is large enough that those numbers could end up in reality.
Click to expand...
SoCal is insane right now....youre figures are correct...AZ and Las Vegas are next inline...the prices of homes have tripled in a matter of months...the Foreclosure rate is expected to be astronomical in Cali...investors have created a false market in AZ and LV....Cali folks have strung themselves out so deep buying into 700K plus homes- just for a simple track house....
 
PBR said:
SoCal is insane right now....youre figures are correct...AZ and Las Vegas are next inline...the prices of homes have tripled in a matter of months...the Foreclosure rate is expected to be astronomical in Cali...investors have created a false market in AZ and LV....Cali folks have strung themselves out so deep buying into 700K plus homes- just for a simple track house....
Click to expand...
my parents just bought a house in AZ for about 50% less than they would have paid in Ca (specially the LA area). They are increasing rapidly over there too, house prices where up $15,000 - $35,000 from what they had seen just 2 months a go.
 
SoreArms said:
my parents just bought a house in AZ for about 50% less than they would have paid in Ca (specially the LA area). They are increasing rapidly over there too, house prices where up $15,000 - $35,000 from what they had seen just 2 months a go.
Click to expand...
bro you can say that again...AZ housing is off the chart....the heat right now is slowing buyers from cali....looking at RE in 115' weather is not appealing...some AZ peeps are trying to relocate and buy up, while Cali is taking a break from the heat...a couple of months ago, homes were on the market there for 24-36 hours before biding wars started...two homes that i know of set record highs for 50+ bids in each home!!!! AZ homes at this moment are staying on the market for a couple of weeks...go right now if you want a good deal...as soon as it cools off- Cali peeps will be back in full force.
actually its a shame, i think....AZ peeps hate cali's for driving their market to the heights its currently at...
 
REal estate is a long term investment. It doesnt get thrown around like stock.
 
superdave said:
REal estate is a long term investment. It doesnt get thrown around like stock.
Click to expand...


For most families this is true - real estate is probably the largest investment they will ever make. But the recent rise in the real estate market has brought in serious cash from serious investors. If you think that people/investment firms with big time money to throw around are going to ignore the real estate market when it posts 30% gains in a single month (like has happened in So Cal) then you are not looking at the whole picture.

A big part of the problem is the fact that real estate is attracting this type of money. It's to the point where in many parts of the country families can't realitically afford to live in the communities where they work.
 
Tadow said:
Rates do not directly effect prices. However, under current economic understanding, raising the prime rate should lower demand for housing, thus LOWERING home prices.

This is what Greenspan has been trying to accomplish for a few years now. Raise the fed funds rate, driving up the cost structure for commercial banks. Banks pass this on in the form of higher interest rates. This raises the cost of investment to companies and individual investors, in turn decreasing investment. Less individuals looking to invest is represented by a decrease in the demand for housing (a shift downward or to the left for those familiar with a basic Supply and Demand graph). This results in a lower price.

Greenspan, and anyone with any sense, knows that there is a bubble in the housing market. He doesn't want to retire having left a bubble about to pop on his watch. So for years now he has been trying to control housing prices by upping the fed funds rate. It sure isn't fear of inflation that's been driving it up.

What he and many others can't figure out is why it hasn't been working. And personally, I am holding off on buying a home because the last thing I want to be sitting on is a 300K house with a 750K mortgage. And in So. Cal, I believe that the bubble is large enough that those numbers could end up in reality.
Click to expand...


alright bro's...the fed has little corrolation with mortgage interest rates. Mortgage interest rates are based on the secondary mortgage market, where investors trade mortgage backed securities. the stock market effects interest rates more than the fed does.

it's pretty funny that most people panic
 
calveless wonder said:
alright bro's...the fed has little corrolation with mortgage interest rates. Mortgage interest rates are based on the secondary mortgage market, where investors trade mortgage backed securities. the stock market effects interest rates more than the fed does.

it's pretty funny that most people panic
Click to expand...
I have no idea what you just said
 
So Cal may not get hit as hard as you all think

industry and jobs are diverse - I think it would require a major falling out of one of those to effect the market to where it slumps.

either way, I wont be able to afford to live there anytime soon.
 
UA_Iron said:
So Cal may not get hit as hard as you all think

industry and jobs are diverse - I think it would require a major falling out of one of those to effect the market to where it slumps.

either way, I wont be able to afford to live there anytime soon.
Click to expand...
with my parents in the Az area, I'll probably be over ther now and then. I'll hit you up, you better not flake.
 
SoreArms said:
with my parents in the Az area, I'll probably be over ther now and then. I'll hit you up, you better not flake.
Click to expand...

you, me and tiger
 
I really do wish this bubble would deflate some so that we could afford to get into another house to get rid of our current problems but that doesn't seem likely in the near future
 
Whiskey said:
A neighbor of mine was bitching, she just put her $80,000 house on the market for $106,000 thinking that for shure she'd get a buyer. no way, not now. especially in my small town. It is about 2500 sq. ft. though

Whiskey
Click to expand...

Damn , 80,000 for a 2,500 sq. ft. home. Thats awful cheap. Where do you live?
 
calveless wonder said:
alright bro's...the fed has little corrolation with mortgage interest rates. Mortgage interest rates are based on the secondary mortgage market, where investors trade mortgage backed securities. the stock market effects interest rates more than the fed does.

it's pretty funny that most people panic
Click to expand...

Most people panic = market corrections.

Secondary market is equally capable of panicking, although there are insurance products to ease their pain.
 
MattTheSkywalker said:
Sure they don't.

But when more people put their houses on the market looking to "cash out" and fewer people can afford them due to higher rates....well, you see where this is going.
Click to expand...
yup
 
MattTheSkywalker said:
The extended lower rates have enabled the lending industry to get more creative. 15 year ago, interest only mortgages were virtually non-existent.

Now all kinds of people have them.

Same with adjustables...much more common these days.

This "creative financing" makes it possible for people to buy "more house" than they otherwise would have and prolongs / raises the bubble.

When the inevitable correction happens, cash buyers will do well. So Cal will get hit very hard.
Click to expand...

What do you think will happen in New York City?
 
George Spellwin said:
What do you think will happen in New York City?
Click to expand...

I expect NYC to see a small correction, at most 15%, because some of the prices are insane. A friend of mine around Chelsea just sold his place for $2.8M. It's 2300 s/f - a nice place, but almost $3M? You gotta be kidding me! :)

Many NYC places are expensive enough that their owners own multiple residences....for example another in Miami or Ft Lauderdale, etc., especially as their NYC residences have appreciated in value. These are the buyers who are likely to go interest only to take on a second place, or use a lot of their equity in their primary residence, etc.

But NYC is usually the primary residence (the high paying jobs are in NY), so these people will not be selling their NY residences. They will be selling their secondary places at a loss and flooding the market, if rates continue to rise. I am steering clear of South FL property.

NYC property owners are also sophisticated enough to know that higher interest rates mean that other investment vehicles will generate better returns, so some might sell investment properties they own (in NYC) thereby adding to the supply a little bit...hence the aforementioned correction.

If you own in NYC, you have little to worry about unless you really stretched, went interest only / ARM.

Post correction prices will level off 10% lower than they are today - my best guess.
 
MattTheSkywalker said:
I expect NYC to see a small correction, at most 15%, because some of the prices are insane. A friend of mine around Chelsea just sold his place for $2.8M. It's 2300 s/f - a nice place, but almost $3M? You gotta be kidding me! :)

Many NYC places are expensive enough that their owners own multiple residences....for example another in Miami or Ft Lauderdale, etc., especially as their NYC residences have appreciated in value. These are the buyers who are likely to go interest only to take on a second place, or use a lot of their equity in their primary residence, etc.

But NYC is usually the primary residence (the high paying jobs are in NY), so these people will not be selling their NY residences. They will be selling their secondary places at a loss and flooding the market, if rates continue to rise. I am steering clear of South FL property.

NYC property owners are also sophisticated enough to know that higher interest rates mean that other investment vehicles will generate better returns, so some might sell investment properties they own (in NYC) thereby adding to the supply a little bit...hence the aforementioned correction.

If you own in NYC, you have little to worry about unless you really stretched, went interest only / ARM.

Post correction prices will level off 10% lower than they are today - my best guess.
Click to expand...


I fuggin' hate I.O. products, unles someone wants a HELOC that they'll use wisely. Utah is so fucked in a few years. You know anyone that wants to buy a shitload of 2-8 unit properties that they will be able to pick up on the cheap, start looking here in a year or so when their stated I.O. ARM's begin adjusting. So many home owners here are going to dump their homes and have to rent. I have a few I'm looking at that I did a few years ago and the fuckers didn't listen to me when I told them what to do. Always have to learn the hard way, huh?
 
jnevin said:
I fuggin' hate I.O. products, unles someone wants a HELOC that they'll use wisely. Utah is so fucked in a few years. You know anyone that wants to buy a shitload of 2-8 unit properties that they will be able to pick up on the cheap, start looking here in a year or so when their stated I.O. ARM's begin adjusting. So many home owners here are going to dump their homes and have to rent. I have a few I'm looking at that I did a few years ago and the fuckers didn't listen to me when I told them what to do. Always have to learn the hard way, huh?
Click to expand...

Yep. I am holding off on any more properties for now, will look to buy some for cash as the supply goes up when the ARM's adjust.

Markets are cool. People will get shitted on. I like tacos.
 
MattTheSkywalker said:
I expect NYC to see a small correction, at most 15%, because some of the prices are insane. A friend of mine around Chelsea just sold his place for $2.8M. It's 2300 s/f - a nice place, but almost $3M? You gotta be kidding me! :)

Many NYC places are expensive enough that their owners own multiple residences....for example another in Miami or Ft Lauderdale, etc., especially as their NYC residences have appreciated in value. These are the buyers who are likely to go interest only to take on a second place, or use a lot of their equity in their primary residence, etc.

But NYC is usually the primary residence (the high paying jobs are in NY), so these people will not be selling their NY residences. They will be selling their secondary places at a loss and flooding the market, if rates continue to rise. I am steering clear of South FL property.

NYC property owners are also sophisticated enough to know that higher interest rates mean that other investment vehicles will generate better returns, so some might sell investment properties they own (in NYC) thereby adding to the supply a little bit...hence the aforementioned correction.

If you own in NYC, you have little to worry about unless you really stretched, went interest only / ARM.

Post correction prices will level off 10% lower than they are today - my best guess.
Click to expand...


Well put.
 
calveless wonder said:
alright bro's...the fed has little corrolation with mortgage interest rates. Mortgage interest rates are based on the secondary mortgage market, where investors trade mortgage backed securities. the stock market effects interest rates more than the fed does.

it's pretty funny that most people panic
Click to expand...

Yes the Fed has little DIRECT effect on very few things. Most importantly the Fed Funds Rate and the money supply.

There is a reason that Greenspan has been called the most powerfull man in America, and it's not because his power ends at raising the Fed Funds rate. Changes made by the Fed have wide reaching effects into secondary markets.

How do you think the Fed fights inflation? Upping interest rates and constrainig money supply through the selling of T-Bonds to the private sector. Until the past few years, don't think you'd find many economists that would agree with you when you say that the Fed cannot strongly influence secondary markets if that were it's goal. Given the fact that the Fed has been unable to do so in recent years, there are many very intelligent people trying to find out what is wrong with our current model of economic understanding to explain why these efforts aren't having intended effects.

And the reason for "panic" as you call it it this - if the Fed can't cool those markets down (slowing the rise in prices), prices WILL drop. So far, they have failed.
 
Last edited:
Tadow said:
Yes the Fed has little DIRECT effect on very few things. Most importantly the Fed Funds Rate and the money supply.

There is a reason that Greenspan has been called the most powerfull man in America, and it's not because his power ends at raising the Fed Funds rate. Changes made by the Fed have wide reaching effects into secondary markets.

How do you think the Fed fights inflation? Upping interest rates and constrainig money supply through the selling of T-Bonds to the private sector. Until the past few years, don't think you'd find many economists that would agree with you when you say that the Fed cannot strongly influence secondary markets if that were it's goal. Given the fact that the Fed has been unable to do so in recent years, there are many very intelligent people trying to find out what is wrong with our current model of economic understanding to explain why these efforts aren't having intended effects.
Click to expand...


bottom line is........ the fed can only affect mortgage rates if they disrupt the stock and bond market. As long as people are buying bonds, they're most likely investing in some form of mortgage backed securites. Mortgage interest rates are almost(not exactly) inverse to the stock market.
It's typically when these mortgage backed securities are sold to free up cash flow (usually to invest in stocks), that interest rates on mortgages go up. When investors want a guaranteed yield over a certainn period of time, they invest in bonds or mortgage backed securities obviously. i

Housing inflation and overall economic inflation are two completely different entities. The housing market will naturally correct itself when the demand runs out. Prices will go down, but i think it's gonna be geographically specific.

The south florida housing market (my market) will thrive for at least a few more years. Especially in the miami area.
 
calveless wonder said:
The south florida housing market (my market) will thrive for at least a few more years. Especially in the miami area.
Click to expand...

From where I sit (someone who owns two S FL properties plus one in North FL), South FL is the market in the US most likely to drop precipitously.

Miami especially is way overbuilt, and all of your allusions to the relationships between stocks, bonds, mortgage rates and the secondary market mean precisley jack shit against obvious supply and demand mismatches.

You sound like you're trying to convince yourself that the market is strong down there.

Miami real estate is going to fall like a stone.
 
My friend, Mr. Housing Bubble has a message for all high valued property owners, who still owe big money....

hbbl_lg.gif


Zig
 
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