The easy credit spigot is getting cranked a bit tighter
Of course, that means less buyers, longer listings, and declining prices
The bond market is popping the dreams of home ownership for some Americans.
Home buyers who can only afford to buy homes with lower adjustable-rate mortgages (ARMs), those who can scrape into a house with more "exotic" loans with low teaser rates, and some investors contemplating second home purchases could be soon shut out as short-term rates rise, analysts said.
Higher ARMs rates will next year further crimp housing demand, which has shown signs of fatigue in recent months.
ARMs have allowed more people, including risky borrowers with spotty credit histories, to buy homes for the first time
While ARMs have been instrumental in expanding home ownership, their rapid growth in recent years worried regulators because speculators have used the more exotic types of ARMs to buy and quickly sell properties, especially condominiums.
"I think people who were trying to get into investment properties and trying to flip them won't see those financial advantages with the short-term rates being higher than the long-term rates," said Bob Moulton, president of Americana Mortgage Group in Manhasset, New York.
December 30, 2005
Inverted yield curve to cool housing market (sorry condo flippers - party's over)
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6 comments:
This is classic … a realtor from Orange County comes clean on the rapidly changing market sentiment.
God I love this:
“MARKET UPDATE
In the last 30 days I am seeing more homes sitting on the market for longer periods of time.
I am also recognizing that there are more homes expiring, less homes selling, and the ones that are selling are not selling at their full list price. PLEASE DON'T SHOOT THE MESSENGER.”
http://realtytimes.com/rtmcrcond/California~Orange_County~rossmclaughlin
LOL where did that sign come from, if you know the guy who ginned that one up I want to buy a couple
So which is it?
One day you are pounding your chest about mortgage rates rising.
Then comes the dropping of long term rates, or better known as the inverted yield curve.
Now you are concern about people with interest only mortgages and short term arms.
If these people are in their program to make the interest rates as low as possible and be able to pay down the debt fast. They actually did the right thing. Each time they roll the rates over their interest is still lower than it would have been on a 30 year loan.
I will be the first to admit that the normal personality of the person in these programs are there because they over bought, not because they are smart. But at least recognize the dumbass were lucky.
If your rate was 3.5% instead of 6.25% and all else was equal the house that would have taken you 30 years to pay off will take 10. In 5 years you have enough money down to where if the rates did rise to 7% (which there is absoulutly no indication they will) you are still way ahead in the game.
When done right these programs could have taken the people who bought in 2001 to the safety of 50% equity today - 70% if they put 20% down.
But of course the real problem is people that should be buying a $75,000 house in a good ole blue collar neighborhood where real estate won't crash because it never bubble, are buying that dream house for $600,000 in the bloated subarbs.
Phillip,
Sorry I did crunch the numbers wrong.
Going back and check with today's arms and 15 year loans. The arm cuts off 3 years on the mortgage by lower the rate and using the same payment as with the 15 year mortgage.
Fannie may does offer a 1 year arm with a 10 year payment plan. Which i do like because it forces people to buy a cheaper house and pay it off more quickly.
The 30 year mortgage was the worse thng ever invented.
I still don't think you get the whole inverted yeild curve issue. First off the long term notes dropped below the short term. Mortgages are tied to the long term. THEY DROPPED - NOT RISEN!!!
I beleive the inverted yield is more of a repersentation of banks revisting the corpoorate credit crunch. In 2000 to 2003 when banks started refusing to buy corporate junk bonds their extra money help pushed mortgage rates down.
It appears the banks are pulling the brakes on the corporate world again. They then choose the safe route and pump money into the 10 year notes, dropping the return on the 10 year notes below the short term rate. But that money doesn't stay there forever.
When the banks regroup I do so it going back into housing.
longterm notes didn't drop! Short term rose to the level of long term!
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