How low can we go? 30 yr fixed at 3.75% with no fees...

If they go up enough there will be another housing crisis a few years down the road when all the ARMs start readjusting and homeowners act like they had no idea this could happen and can't pay the new payments.
 
Ready2Downsize said:
If they go up enough there will be another housing crisis a few years down the road when all the ARMs start readjusting and homeowners act like they knew this couldn't happen and can't pay the new payments.
Click to expand...

Not really...adjustable rate of the loan is just one issue but it was really the loose lending standards unrealistic property values, and non-existent LTV standards that caused the crisis.  Teaser rates and practices like no-doc loans exacerbated the problem.  Of course, the crash of home values and mass unemployment were the match that lit the explosive.

Adjustable rate loans given out in the last few years are based upon extremely tough standards, relatively low values, and high LTVs.  Unemployment is dwindling and the economy much better.  Additionally, ARMs have caps on them and were based upon actually lending rates at the time they were handed out.
 
Ready2Downsize said:
If they go up enough there will be another housing crisis a few years down the road when all the ARMs start readjusting and homeowners act like they had no idea this could happen and can't pay the new payments.
Click to expand...

ARMs adjusting won't be a problem if the homeowners aren't underwater since they could just sell if they can't afford the new payment or refinance. Key points to avoid the previous crisis:

- No 0 down loans. I rented a condo from a lady that got an 80/20 loan. Of course she walked when it went underwater. It was a free lottery ticket for her (sell if it goes up $100K, walk away if it crashes)
- No negative equity / interest only loans. It may not seem like a lot, but I pay down about $10K/yr in principal. If I live in my month for my 7 year ARM duration I'll have paid off $70K in addition to the 20% I put down. Means home prices would have to fall 40% for me to be underwater...
- No housing bubble in the first place. We are not in a housing bubble right now like we were back in 2006. If we have double digit home price increases for the next 2-3 years then we'll be a lot more at risk
 
paperboyNC said:
Ready2Downsize said:
If they go up enough there will be another housing crisis a few years down the road when all the ARMs start readjusting and homeowners act like they had no idea this could happen and can't pay the new payments.
Click to expand...

ARMs adjusting won't be a problem if the homeowners aren't underwater since they could just sell if they can't afford the new payment or refinance. Key points to avoid the previous crisis:
Click to expand...

That's exactly what people thought in 1989 to the early 1990s but plenty of my neighbors were foreclosed on in Tustin Ranch when their loans adjusted upwards, the economy got soft and there were plenty of new homes with builders offering incentives to compete with resales.



 
paperboyNC said:
Ready2Downsize said:
If they go up enough there will be another housing crisis a few years down the road when all the ARMs start readjusting and homeowners act like they had no idea this could happen and can't pay the new payments.
Click to expand...

ARMs adjusting won't be a problem if the homeowners aren't underwater since they could just sell if they can't afford the new payment or refinance. Key points to avoid the previous crisis:

- No 0 down loans. I rented a condo from a lady that got an 80/20 loan. Of course she walked when it went underwater. It was a free lottery ticket for her (sell if it goes up $100K, walk away if it crashes)
- No negative equity / interest only loans. It may not seem like a lot, but I pay down about $10K/yr in principal. If I live in my month for my 7 year ARM duration I'll have paid off $70K in addition to the 20% I put down. Means home prices would have to fall 40% for me to be underwater...
- No housing bubble in the first place. We are not in a housing bubble right now like we were back in 2006. If we have double digit home price increases for the next 2-3 years then we'll be a lot more at risk
Click to expand...
How confident are you that we are not in a housing bubble and why are you so confident? 
 
As to your reference IHO:

Donald Bren blanches, then grabs a nearby chair to sit....

"It was if millions of dollars in purchase deposits with buyers who haven't locked their rate suddenly cried out in terror, and were suddenly silenced. I fear something terrible has happened"


My .02c
 
Bullsback said:
How confident are you that we are not in a housing bubble and why are you so confident?
Click to expand...

Obviously everyone is predicting interest rate increases are going to kill housing prices so let's do some math. On a $400,000 mortgage:

3%: $1,686/mo (ARM)
4%: $1,910/mo (now)
5%: $2,147/mo (last seen in 2010)
6%: $2,398/mo (last seen in 2008)
7%: $2,661/mo (last seen in 2002)
8%: $2,925/mo (last seen in 2000)
9%: $3,218/mo (last seen in 1995)
Source:http://www.freddiemac.com/pmms/pmms30.htm

Heck, in 1981 when my parents bought their first home, rates were 18%

So let's say that by 2020 rates are at 6% (my prediction). How will that effect housing prices if all else is equal and inflation is at 3%?

$500,000 home currently:
$1,910/mo for $400k mortgage
$500/mo for property tax
$200/mo HOA
----------
$2,610/mo

in 2020 @ $2,610/mo now will be equivalent to $3,026/mo after 3% per year in inflation

$500,000 home:
$2,398/mo mortgage
$500/mo property tax
$200/mo HOA

$3,098/total

So to keep the same inflation adjusted payment the home price would fall to:
$490,000 home (still $100k down):
$2,338/mo mortage
$490/mo property tax
$200/mo HOA

$3,028/total

That's one way to think about the interest rate / home price relationship and shows that a gradual rise in 30yr mortgage rates over the next few years that is expected will likely just flatten out home prices rather than cause another crash.

So the next question is: Are home prices too high now?

Since typically the question is buying vs renting,http://www.ocregister.com/articles/month-648388-rent-county.html

Feeling the pinch? Local rent prices hit a record high
Last year, asking rents for large-complex apartments in Orange County jumped 4.8 percent, according to a report from RealFacts, an apartment tracking service. And with vacancy rates low (5.2 percent), rents are likely to go nowhere but up.

Orange County apartment landlords were asking an average of $1,781 a month for vacant units in large apartment complexes in the fourth quarter, up $81 from a year ago to an all-time high, according to RealFacts.

The biggest increase last quarter was for three-bedroom townhomes, which were up $108 per month, to $2,736 a month, RealFacts figures show. That?s a gain of 4.1 percent from a year earlier.

--------------

Rent vs Buy comparison for a 3bd room townhome. Let's say a buying a 3bd room townhome. I'd guess the median Orange County price for one is $500K (couldn't find an easy source for this).

Renting: $2,736/mo
Buying:

$167/mo $100K down (would have earned 2% in safe tax-free investments) = $167/mo in opportunity cost
$1,686/mo 3% ARM mortgage of $400K
$500/mo property tax
$200/mo HOA
$50/mo insurance
----------------------
$2,603/mo to buy

Buying also gives you tax deductions, chance for appreciation, etc.

So right now, buying is cheaper than renting if you can use the tax deduction, and even modest increases in interest rates will keep home prices flat.

FYI - I had dozens of friends and family tell me to buy in 2006 and I refused because the same math showed that we were in a ridiculous bubble.
 
Ready2Downsize said:
paperboyNC said:
Ready2Downsize said:
If they go up enough there will be another housing crisis a few years down the road when all the ARMs start readjusting and homeowners act like they had no idea this could happen and can't pay the new payments.
Click to expand...

ARMs adjusting won't be a problem if the homeowners aren't underwater since they could just sell if they can't afford the new payment or refinance. Key points to avoid the previous crisis:
Click to expand...

That's exactly what people thought in 1989 to the early 1990s but plenty of my neighbors were foreclosed on in Tustin Ranch when their loans adjusted upwards, the economy got soft and there were plenty of new homes with builders offering incentives to compete with resales.
Click to expand...

Agreed with Ready2Downsize on all points. Rates have risen up dramatically since the last time I checked on 10/1 against today rate. Rate is like to head up ward trend from now.....If you have to refi out of the ARM its more likely that you will have to pay higher monthly payment.
 
Paperboy,
You should never make predictions about where rates will be by 2020, or any other year.  No one has a crystal ball, and no one knows what sets of circumstances will come up , in the near future, nor in years to come.  You have no idea where rates will be, other than right now.
 
The first whispers of "the Fed's going to raise rates next year now that the crisis has passed" was 2011. Almost 5 yrs later it's finally a remote possibility...perhaps...somehow...

So the take away remains the same: no one knows when and if rates will rise significantly enough to put a damper on demand. It's not the fact of when - rates change daily - but by how much - something that can't be determined with any degree of accuracy.
 
joe1996 said:
Paperboy,
You should never make predictions about where rates will be by 2020, or any other year.  No one has a crystal ball, and no one knows what sets of circumstances will come up , in the near future, nor in years to come.  You have no idea where rates will be, other than right now.
Click to expand...

Laugh out loud. The very definition of a prediction is that you don't know whether or not it will be accurate. You are free to never, ever make predictions. But the rest of the world doesn't function that way.
 
Stock market not doing too well, that means it's time to recheck refinance rates.  Came across this lender from zillow, they're offering $4k in lender credit for 5/1 Jumbo ARM at 2.625% with LTV at 50%.  That should leave over $1k for principal when you close.  Gonna reach out and see if it is indeed true.  Looks Chinese, based in Walnut.  They probably won't be around next year or change their business name. 
 
Get you pay stubs ready, putting up the refi signal for tomorrow.  Alyson just emailed me rates dropped for 5/1 ARM.
 
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