Posted on 01/31/2012 7:04:21 AM PST by whitedog57
According to S&P Case-Shiller, The S&P/Case-Shiller index of property values in 20 cities declined 3.7 percent from November 2010 after decreasing 3.4 percent in the year ended in October.
If we look at the Case-Shiller 20 City Index (blue) and Bankrate’s 30 year mortgage average rate (orange), you can see the problem. Mortgage rates continue to fall, but housing prices continue to fall with it. Of course, foreclosed properties are still a drag on the housing market.
On a month-over-month (MoM) basis, Case-Shiller 20 City index fell -0.7%, more than expected (SA). But if we look at Non Seasonally-Adjusted (NSA) data, we can see a clear “Wintertime Blues” pattern.
On a Metro level, 89 of the 20 metro areas were down (particularly on the west coast and Florida). The only cities that were up were Washington DC (massive government spending does help DC) and … Detroit.
Cheer up! The Spring will be upon us and we typically see a rise in home prices!
If I could pick a time to buy a house, it would be at a time when interest rates are at an all time high. Three reasons:
1. Since people buy a monthly payment, rather than price, it means that it would deflate house prices. IOW, the principle would have to be a smaller part of my monthly payment and therefore prices would be lower.
2. Since most of my payment is interest, I would get a bigger interest deduction on my income taxes
3. When interest rates DO come down, my home will be worth more so I could, if necessary, sell at a profit.
4. When interest rates do come down, I can refinance and save possibly hundreds, or more, per month.
OTOH, if I buy when interest rates are at historic lows, there are many reasons not to buy, all relating, but in a negative way, to the same numbered items above:
1. Since people buy a monthly payment, rather than price, it means that it would increase house prices. IOW, the principle would have to be a larger part of my monthly payment and therefore prices would be higher.
2. Since most of my payment is principle, I would get a lower interest deduction on my taxes. In fact, it may be so low that I fall into the standard deduction.
3. When interest rates DO go up, my home will be worth less, so I run the risk of being underwater, and the house becomes a ball and chain, forcing me to remain there even if the local economy tanks.
4. When interest rates do go up, I can refinance! Hahaha! Actually, buying when interest rates are at historic lows means you can only expect your monthly payment to remain the same or go up as real estate taxes kick in. There will be no “refinance to save hundreds per month” in your future.
Bottom line: This is a very, VERY bad time to buy a house.
According to Yahoo this was ... “Unexpected”
A few thoughts: high interest rates are usually coupled with high inflation, which means that house prices would be expected to go up, not down, in period of high interest rates. Also, when interest rates are going up, people buy because they perceive that if they wait, they are going to be priced out of their house. Looking at 1977-1981, when interest rates rose from 6.25% to 21.50%, the average home price went up over 50% over that same period.
The reverse is also true: when interest rates are falling, there is lower inflation and people wait to buy because they feel that they can get a better deal by waiting. You would expect home prices to fall—as they have done now.
So if you bought your house at the highest interest rates and then tried to sell in a period of falling rates, you may have some difficulty because people are waiting for a better deal.
With respect to your final point 4, if interest rates are on the rise, that means that inflation is likely on the rise, which would mean a growth in salary and wages, which means a lower percentage of my income is devoted to housing (because I bought at a low, fixed rate). Inflation is good for borrowers, bad for lenders. Not the other way around.
Yep. Your points are all valid. What it all really comes down to is that you should not be trying to “time” the market precisely.
I’ve mentioned to several people that the time to buy is when you start seeing prices go up for a few months (year over year) followed by interest rates starting to rise. If that sort of stability is going on, you can figure that your home will increase in value BECAUSE we are in an inflationary period.
I bought my first house in 1980. (ouch!)
Got you beat...bought my first house in 1973...cost what a decent car costs now...we are looking at buying a LOT behind our house in a newer neighborhood....to give us “breathing room” behind us (lots here are 6000sf)....the lots have dropped by about 1/2 in the past 3 years.
The interest rate on my 1980’s purchase was almost 20%! Meanwhile, the farm and home I bought in Kentucky in 2010 has an interest rate of significantly less than 4% and the monthly payment on a FIFTEEN YEAR mortgage is less than my car payment was on my six year loan on my 2001 Chrysler.
I’m living in a personal deflationary world. And loving it...
Well.....I bought a condo in 1981, I think, and the interest rate was about 13%....deeded it back to the bank when I moved out of state in 1983.....and was glad to do so!
In my desert area, at the height of the mania, a new development was selling 1/4 acre lots for $40,000. They're down to $8,950 with a few sporadic takers who convert them to "snowbird" RV pads.
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