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This Can't Be Helping Real Estate

by: Bespoke Investment Group July 24, 2008 | about stocks: IYR / XHB    

Bespoke Investment Group

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Bankrate.com's 30-year average US fixed mortgage rate was at 6.5% Tuesday, which is the highest it has been since April 2002.  New highs for rates can't be tempting potential home buyers to pull the trigger.

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Mortgagerates723

Mortgagerates72308

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This article has 12 comments:

  •  
    Jul 24 06:52 AM
    Rates will only go higher. The banks want their money back.
    Reply
  •  
    Jul 24 09:22 AM
    Rising rates will greatly exacerbate the crisis. Right now, the problem of ARMs adjusting higher has been muted by the drastic rate cuts; as these cuts are reversed, the number of forced sellers will only increase. Further, tighter lending guidelines will mean fewer people able to get a mortgage, particularly to buy a home at today's still inflated prices. The only thing that will eventually turn the market around is when deep pocketed speculators come in, and they wait till there is blood in the streets, and when the cost of carrying a house again begins to remotely resemble the amount for which they can be rented, and prices have a good bit to fall before either of these is the case.
    Reply
  •  
    Jul 24 09:35 AM
    We bought our home last September & closed @ 6.5%. So it's where it was a year ago. Relax folks. The sky is not falling.
    Reply
  •  
    Jul 24 09:58 AM
    Mark, many ARMs are set to adjust based on the LIBOR rate plus some percentage (maybe about 2%). Unlike the Fannie Mae mortgage rate, the LIBOR rate has not moved up significantly recently and is still very low. Many of the boilerplate agreeements for ARMs had the LIBOR clause in them. People with ARMs should be aware of that since the banks may try to stick them with a much higher mortgage interest rate upon reset. If you are unsure, you should read through your ARM contract carefully. Not doing so could end up costing you 10's or 100's of thousands of dollars over the life of your mortgage. If the bank attempts to foist a higher rate rate on you, you should fight it tooth and nail. Current money rates are available daily from the Wall Street Journal (search for "Money Rates" at wsj.com).
    Reply
  •  
    Jul 24 10:03 AM
    ksmithdc, if you are paying 6.5% on a mortgage that you signed last year, you paid too much. I hope they didn't tack on a bunch of points as well!
    Reply
  •  
    Jul 24 11:21 AM
    I just had my 5 /1 arm readjust and I can't believe the deal I got.My rate went from 4.25% to 4.33%.That's a heck of a lot better than most folks I've talked to.My rate is tied to the 1 year T-Bill rate and thanks to the idiots at treasury who don't see the wisdom of borrowing more at 1 year rates, that rate has been artificially low for some time.And to think that Citi wanted me to do a mortgage adjustment to lock in a 25 year rate at 5.65%.
    Reply
  •  
    Jul 24 12:40 PM
    4.33, that is an awesome deal, something to celebrate. But beware, soon the rates will go up and you will have to refinance to something like the 6.5 mentioned above...
    Reply
  •  
    Jul 24 12:47 PM
    Geez! I still have a mortgage at 7.5% .... And I recall my first purchase 16% ... These rates are not the end of the world and are really quite cheap. Also, consider that the price of homes has dropped considerably. Buying now is a deal.

    Thx jegan ;-)
    Reply
  •  
    Jul 24 02:02 PM
    I am going to buy some real estate as an investment, but not this year. I'll wait until middle of 2009. Still 10% more (at least) to drop in price.
    Reply
  •  
    Jul 24 03:38 PM
    With US Treasury Income Flows (net changes in money invested in Treasuries) on a steady decline with the trendline now below the amount needed just to finance the US budget deficit (more than $30 billion every month - see chart at tradesystemguru.com/co... ), what foreign bank or investor will want to continue to invest in a money losing asset? The real rate of inflation in the US now runs somewhere between 6% and 8% with 10-year Treasuries yields back around 4% (and dropping) and a weak dollar (possibly getting weaker?).

    So who in their right mind would buy an asset class with a real rate of return (not including dollar changes) around -2 to -3% especially as their economies cool as well? Let's face it, we've been living beyond our means for years thanks to the willingness of exporters (mostly Chinese and Japanese) to subsidize our wild and woolly spending ways by buying Treasuries with little consideration for real returns.

    But as some point as this trend continues, it is only logical to expect to see interest rates move continually higher until they are at least above the real inflation rate... and real inflation is rising.
    Reply
  •  
    Jul 24 06:17 PM
    The Fed doesn't control long Treasuries. That's a supply and demand deal. As we continue to ship $700B a year out of the country, supply increases and demand....will also increase at higher interest rates.
    Reply
  •  
    Jul 25 12:50 AM
    Rates must rise to offer investors pay back above and beyond the rate of inflation.

    Bye bye cheap and easy money, hello stagflation.
    Reply
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