Monday, September 05, 2011

From Sunday's L.A. Times: Read the second part of the headline first. Home prices soar (what?) AND monthly payments are more affordable

Sunday's L.A. times had a syndicated column by Lew Sichelman entitled Home prices soar in some areas as buyers opt for more expensive properties.  Lower mortgage rates are making monthly payments more affordable.  Does it seem that those are two different subjects to you? Well, the first part of the article says,
"[Prices] didn't just rise, though. They shot up by double digits, as much as 54.5% in Kansas City [Kansas City? Really?], almost 39% in Detroit and nearly 28% in Indianapolis from the second quarter last year, according to a survey of the nation's 32 largest metro areas by the Federal Housing Finance Agency.
Of course, house prices didn't really soar that much in a year's time. What's far more likely is that people in those places and several others bought more than the usual number of expensive properties in the April-May-June period." Okay, that explains it.  
The article then switches horses in mid-stream and discusses low interest rates. 
One consultant states, "Buyers also shouldn't worry about whether prices will continue to fall... because mortgage rates have only one way to go, which is up. Even a small jump in rates will wipe out any savings buyers might achieve by waiting for prices to drop further." And here's an interesting mathmatical take-away: " If prices remain flat and rates rise a full percentage point, to 5.5% from 4.5%, the same $200,000 house will cost 12% more each month to own, Yamano said. And if rates should spring up 2 percentage points, to 6.5%, your mortgage payment would jump 25%."  I don't think anybody needs to worry about interest rates rising today, but the article is correct: they have no place to go but up, and I think it's a good idea for would-be buyers AND sellers to be mindful of this.


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  3. Anonymous3:05 PM

    I didn't read the whole article, just the highlights you posted, so apologies if this angle is covered.

    There is another possibility when interest rates do rise (and that is a long way off), and that is it will result in prices dropping. If people can't qualify for the monthly payment it could -could- put downward pressure on prices.

    Rates are at historical lows and so are sales, and a third of those sales are cash buyers. This is not a healthy market and which way it's heading is rather unpredictable. The clips from the article makes it sound like prices have only one direction to go from here. Nothing could be further from the truth.