Tyler Durden said:
nosuchreality said:
Short of wider ranging job losses, I don't see any long term contraction in the market outside of seasonal fluctuations.
In fact, even with new product entering, I continue to see highly constrained market that will continue to drive stiff competition and pricing for homes.
Counter to others, I think interest rate increases and price appreciation will actually exacerbate the problem initially continuing the 'priced in' phenomenon we've been experiencing. Much like the downturn where the equity sellers wouldn't give it away and kept their house off market, they have been replaced with potential equity seller that now will not step up to the increased payments need to move to a better home.
A marginally better home (represented by a mere 10% difference in current home price to target home price) results in a 25% increase in PITA after rolling all acquired equity into the house.
A noticeably better house (25% more expensive than their house's current value), represents a near 50% PITA increase and that's with nearly flat interest rates.
If interest rates rise, you'll see an even further contraction of owners not willing to sell.
Exactly right. Because the effect of the interest rate increase decreases purchasing power (via the increased monthly mortgage payments).
Unfortunately FCBs are not subject to this, since they are not taking out mortgages. So they may be the majority of the participants in the market may be FCBs.
You are forgetting:
- There are homeowners that currently have a high interest rate (maybe they never refi'd or they refi'd back when rates were 4-5%
- There are plenty of homeowners that have paid off their homes. We have a neighbor who is looking to buy a home 100% more expensive (previously they didn't have a family and got a much smaller place than they could afford) and is paying cash for the new place.
- If you get an adjustable rate mortgage you can get a rate of 3.5% or so which is very similar to the lowest rates anyone has. Adjustable rate mortgage won't go up as quickly as fixed rates.
- I have neighbors that have sold their homes and gone to be renters just to lock in the appreciation they got. Some were renting out their underwater homes and renting larger homes themselves and can now sell their previously underwater homes.
- If there isn't a lot of expected future price appreciation, investors may sell a lot of homes.
The point is that it's not the FCBs and everyone else. Each individual has their own unique situation. Personally here are some of the things that could trigger me to sell my home:
A) We end up with a larger family than planned (think twins)
B) I end up getting a job out of state
C) My wife starts working again and we can afford a nicer home
D) I get a large inheritance and can afford a nicer home
Yes - I do think about the higher interest rates when I think about moving up, but it's pretty minimal since I'd get a 5/5 ARM.