"'I anticipate sales will be way down in November and through the holidays, when some people even take their homes off the market until late January,' says Mike Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business.
"Investors and out-of-state buyers are also losing interest in the Phoenix area. The percentage of residential properties purchased by investors has dropped from the peak of 39.7 percent in July 2012 down to 22.6 percent this October. The percentage of Maricopa County homes sold to out-of-state buyers was down from 20.1 last October to 16.4 this October. That's the lowest percentage since January 2009." ("Phoenix housing-market activity quiets down for end of year," Sonora News)
It's the same story all over southern California where housing prices had been soaring but hit the skids shortly after the Fed made its announcement. This is from DQ News:
"Southern California's housing market downshifted last month, with sales falling well below a year earlier as investor activity waned again and buyers continued to struggle with higher prices and a thin supply of homes for sale...
"A total of 17,283 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was down 14.2 percent from 20,150 sales in October, and down 10.4 percent from 19,285 sales in November 2012, according to San Diego-based DataQuick. Last month's sales were 19.8 percent below the average number of sales -- 21,559 -- in the month of November." ("Southland Home Sales Drop; Median Sale Price Edges Sideways -- Again," DQ News)
So what's really going on in the housing market? Is the sudden jolt in mortgage rates really that big a deal or is the market just taking breather before its next stratospheric surge?
Mark Hanson believes the situation is quite dire and explains why in a "must read" post on his blogsite. Here's a clip from his article:
"House prices are down 26% from peak 2006. But it costs 12% MORE on a monthly payment basis to buy today's house...Houses have not been MORE EXPENSIVE on a monthly payment basis in 11 years, right before when exotic loans were introduced to promote affordability..." (12-17 "Housing 'Bubble 2.0'; Same as 'Bubble 1.0', Only Different Actors," Mark Hanson)
But how can that be, you ask, when rates are just 4.5% and home prices are still way below their peak in 2007?
It's because the types of mortgages that were issued during the boom -- all those "exotic, high-leverage, no documentation loans" -- allowed borrowers to fake their income and make small monthly payments on obscene amounts of money they would never be able to repay. Keep in mind, interest rates actually rose in 2003, but that didn't stop the bubble from inflating for 4 more years because lending standards were so ridiculous.
As Hanson notes:
"...from 2003 to 07 mortgages were much cheaper on a monthly payment basis than ever before in history and ever have been since. (And it was all due to)...exotic lending (that) made it so people could keep buying more expensive houses and refinancing at higher loan amounts on income that didn't support it..."
Hanson draws a comparison between the Fed's rate stimulus (from 2011 to 2013) to the crappy underwriting which created the housing bubble.(from 2003 to 2007) That's why he expects the "reset" to be "one for the record books".
Indeed. The impact of rising rates is already visible in the dismal sales and mortgage applications data. It's only a matter of time before institutional investors call it quits and prices begin to fall.
Here's a chart from Hanson's blog. The sudden spike in interest rates has reduced "affordability" putting home ownership out of reach for many potential buyers.
CA Med Price and Payment using popular loan progs -- Bar vs Lone chart
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