Big double-whammy looming for potential homesellers

[Jamison]

Working in the real estate industry I have noticed a few things recently in my region.

Here in St. Louis we have a minor bubble market, and there are signs that it's beginning to burst. I can remember when I first got into the business that it was almost never necessary to lower the initial listing price on a house in order for it to sell in a timely manner. Recently however I'd say that the agents in my office have had to drop prices on about 60% of their listed homes in order to get offers. I wonder if the same thing is happening nationally too?

Secondly, there is widespread panic in the industry going on about fears of the Fed jacking up interest rates to high levels. Rates are still relatively low, but there is fear that the 18-19% interest rates we had in the early 1980's could return in a few years if the Fed continues steady rate hikes.

The combination of these is very bad for sellers, with the last one being the worst by far. Who in their right mind would purchase a home at 18-19%?

Just wondering if you all are seeing the same things and have the same fears.

[wryter2000]

1. Don't know, but I'll give you a kick

This is a very important question. :kick:

[rinsd]

2. Wasn't 18 to 19% the standard fro much of the mid 70's to early 80's?

[SharonAnn]

6. In 1982, when I married and we had to have a house for all of us,

since his condo and my condo were each too small, we bought a house and got a 13% "blended" rate, and that was an Adjustable Rate Mortgage (about the only kind available then). The regular quoted rate was 17% for an ARM if I remember correctly.

We were glad to have to pay "only" 13% and the bank was happy to get better than the 8 3/4% the previous mortgage was at. Fortunately we were able to get it lowered over the years.

But, we had to have a house to be family, we couldn't live in two separate places and hope to be a family.

[rinsd]

8. Thanks....

When I think of my parents buying their first home in 1978 at what the mortgage rates were, I really wonder how the hell they did it.

[Booster]

20. I bought my first house in 1976 and the difference was the cost of

the house. It was $54,000, and at the time I worried about the 16% interest, but even today I'd rather buy a nice house at that price than pay 6% interest on a $400,000 house, which is what my nephew just did.

[Gormy Cuss]

14. No, more like 12-14% on average

It may have spiked as high as 18% but I don't recall anything higher than 16%. It was a very expensive time to finance a house. On the other hand, credit card interest rates were only about 18% and bank savings accounts had guaranteed 4-5% fixed rates.

[carolinayellowdog]

16. My first house in 1979 was at 11%

and the second in 1983 was 12%. The horrendous rates were in 1980 and 81 IIRC.

[mitchtv]

3. In my corner of Calif, it seems to be taking longer to sell

The prices seem to have stabilized, no sign of lower prices yet.

[rinsd]

7. "The prices seem to have stabilized"

I would agree...though I have seen less of the more modest homes listed in the $1/2M + range.

A silly pasttime I have is going through the homes section in Sunday's paper.

[David Zephyr]

31. Hi mitchtv

Prices in your corner went up between June 2004 and June 2005 nearly 20%. Homes do seem to be on the market a bit longer. How are ya?

[mitchtv]

40. most of that 20% was before April

now houses sit there, and many more are being built. Prices are nothing like SD, however where 500K gets you a 1 br or a fixer.We paid 215 K in 2002,added apool , and can easily double it now. There would be, however no place else to go. Hillside Village maybe.David, when are you coming to the desert again?.

[Freddie Stubbs]

4. In Miami

The prices keep going up and up...

[AlCzervik]

5. I live in northern california and we've had no drop at all in prices

but i have noticed less houses on the market here which says to me that people are just staying put. What really worries me is all these people with 0 down interest only loans, that imo will hurt the market and those people greatly when interest rates do go---and they will.

[David Zephyr]

32. Same in SoCal.

Far less inventory on the market from last fall. No drops. Home prices in L.A. County from June 2004 to June 2005...up 17%

[AlCzervik]

36. yeah California marches to it's own beat realestate wise, and other things

too.

[AlCzervik]

37. yeah California marches to it's own beat realestate wise, and other things

too.

[skids]

9. Good place to watch the carnage....

http://www.bankrate.com/brm/graphs/graph_trend.asp?tf=1800&ct=Line&prods=1,10,31&gs=400,220&st=zz&c3d=False&web=brm&cc=1&prodtype=M

[autorank]

10. Not in Northern Virginia. The really smart people say ...

the market will hold with minor ups/downs for about three years. These are people who are making real investments and require objectivity.

This is part of DC metro which is not recession proof, but close.

I'm not confident but I do believe that this country has resiliance that even a BushCo can't destroy.

Here's the kicker here. A lot of people have gone for 5 year "baloons." They will have to refi at that point. I can see this as a real nightmare. Some of these folks are in "grand homes" and presume in 5 years they can assume a real mortgate ... but this is based on today's rate. If rates go up appreciably, there will be a lot of these folks with an expensive home, no ability to pay the post "baloon" rate, and no one to sell to at the price they need.

Could get real ugly in the National Capitol Region.

Hope you market bounces back and good selling

PS. You need to get rid of Bond. The guy is so f'ing strange at this point it's scary!

[David Zephyr]

33. Agree.

Rates are still at unbelievable historic lows.

[fudge stripe cookays]

11. I'm scared shitless.

Although I don't think our market is quite as bad as some.

We'll want to sell in a year or two (I hope), but I can't motivate the hubby to act any faster. He's very deliberate, and absolutely hates change. So we'll be completely screwed by then.

We might be able to finally get to Canada, but we'll have to live on our (not very big) savings and the remnants of a 401K if we can't sell this house.

FSC

[AlCzervik]

15. Maybe you sell in the next 6 months and rent until you're ready to move

to Canada? The capital gains exemption for a married couple is 2 years.

[fudge stripe cookays]

17. Thanks for the tip,

but it'll never happen. I love my husband, but sometimes he drives me up a fucking wall.

He doesn't know how REALLY bad this is going to get. And nothing will convince him. I'm wondering what his next excuse will be.

:eyes:
FSC

[pitohui]

24. trust your husband

i'll be honest w. you, on this issue he's right, you're wrong

ain't no bubble

interest rates are inching up w. painful, painful slowness, ask anyone who has to live off cd's or other interest income

your house will be worth more in 2 yrs than it is today and you'll wonder why you ever worried

good luck but you won't need it, you'll be fine

[fudge stripe cookays]

30. Thanks for the reassurance.

I'll hope you're right.

FSC

[David Zephyr]

34. I think you make a lot of sense, pitohui.

:thumbsup:

[teenagebambam]

12. Here in DC and its environs

we're still seeing ridiculously over-priced houses being snapped up the second they hit the market, often before they're even listed, and usually after a bidding war that gets the seller more than they were asking for.

[CountAllVotes]

13. it was simple in the late 70s; early 80s

If you had a job it likely did not pay a whole lot so buying a home was OUT for most people and they rented. Rents were not nearly as high at that time as now (about 300% less than now where I lived at the time).

I remember a car loan via a credit union was a "deal" at 16%. I did not buy a new car needless to say, I kept driving the old VW bug with 100,000+ miles on it until it was basically a goner.

However, life in the 70s and 80s was a hell of a lot better than life is today in America. At least we had something called "freedom" I thought at that time.

So much for those years past.

:kick:

[pitohui]

25. most people in 70s were homeowners

you are mistaken, in 70s most americans owned their homes, kids rented and really low income people but everyone else owned unless they lived in manhattan or something

[CountAllVotes]

26. well I did not nor did any of my friends

Maybe that is because I/we lived in a part of the USA where the prices of homes were considered outrageous even at that time, I do not know.

However, none of my friends owned their own home. I just finally was able to buy my first home at the end of the 1990s; I rented all of those years being I could not afford to buy a house on the salary I earn. Even now, it is not at all easy.

My parents owned their home yes they did and yes, they are both dead now too. So much for that fantasy.

:kick:

[pitohui]

35. overwhelming majority of americans own homes then and now

http://www.jchs.harvard.edu/publications/markets/Son99.pdf

check the chart

home ownership in usa was at a "low" of 63% in 1966 and has since "soared"

lot of problems in this country but majority of americans do own their own homes and have since at least mid 60s

your friends were in an unfortunate minority

i do not see the situation for renters getting any better, it is unclear how a renter can ever retire, with pensions and social security under attack, and housing and health costs through the roof, the home owner eventually can look forward to paying off the mortgage, thus reducing expenses in retirement significantly

it is worth a little sacrifice to own a home if you can possibly swing it, don't let friends w. negative attitudes drag you down

[Vinca]

18. I live in the southern Vermont/New Hampshire area and

prices are going up, up, up. Mostly it's second home buyers and people who want to get out of New York and Boston. It's a beautiful area, a great place to live and I don't see prices dropping anytime soon. I'm grateful I already own a house or I wouldn't be able to afford one.

[CrispyQ]

19. I'm live along the front range

in Colorado & I've noticed houses taking longer to sell & yes, some drop their prices. I've also noticed rentals taking longer to rent.

I am so glad we decided to pay our itty-bitty house off instead of ramping up to a newer, bigger model. Less to maintain, less to clean & lots more options generally, when you don't have a house payment.

[demnan]

21. In Northern Virginia they expect the reasonably priced condos

like mine to stay the same or still go up. I just refinanced and got a 5 1/2 percent fixed rate. Glad I did.

[pitohui]

22. interest rates are very, very low

no way you're gonna see 18% rates again, i wish we would, in those days i was also getting 18$% on my money market acct with zero risk of loss

higher rates can be good for buyer, the seller lowers price to make monthly payment affordable, when interest rates drop again, buyer can refinance, your house ends up being a bargain compared to the price you paid when interest rates were low and sellers jacked up the base price because they assume -- correctly in many a case -- that buyers only care about total size of the monthly payment

no bubble here, no fear either

nothing wrong w. starting a house a little high to test prices, then dropping a little if it doesn't sell, i've seen it in my neighborhood and it happens because realtors have stars in their eyes and start the price way too high, the seller still ends up selling at a nice profit but it doesn't replace the lottery

[DiverDave]

23. In Delaware

in the area I live in, the houses are selling FAST...
We had ours priced by a realtor just lately, and she brought back a figure that was TWICE what we payed in 1998.

We are staying and remodeling, I don't see a cool off around here anytime soon...

[Rockholm]

27. Gloom Doom. Go Away.

How stupid is this post? Do you know how long it would take for rates to go from 5.25 to 18 percent?
Once again, DU and other boards are being infiltrated by folks like you trying to drive prices down and make some sort of "correction" happen.
Please, ST LOUIS? Is there even a housing market there?

[CountAllVotes]

29. right you are!

Interest rates are hovering around 5.5% at present. That is indeed a very long was from 16-18% no doubt. It would take years for it to get that high again. And yeah, I remember those times very well. High inflation and high prices and you ended up with not a whole lot of anything. That is the only thing I see that is similar to today's circumstances - low paying jobs, low wages, high inflation.

:kick:

[David Zephyr]

38. Thanks for your wise words.

Rates will not rocket as the poster suggests.

On another note, there are a great many individuals who have shorted REITS in the market and are now invested financially in a gamble that the real estate market will turn down. Unfortunately, they are clogging up financial forums and non-financial bulletin boards and chat rooms with doomsday fear talk in an attempt to drive down the real estate market and thereby make a profit for themselves on other people's misery. I know that you are aware of this, Rockholm, but others here at the DU may not.

[On the Road]

28. I Have Heard About Softness in the Local DC Market

but have not had direct experience.

In nearby Baltimore, however, prices continue to go up. Baltimore has been undervalued for at least the last 20 years, so any bubble will probably affect Baltimore more gently than other cities.

I am expecting some softness for several years but the market is being carried away. Just waiting for a crash to pick up a rental property or two. I saw it in 1986-7. Something similar has to happen again.

[alfredo]

39. Our townhouses usually go within a couple weeks on

the market, now some of them are sitting there for months with few or no offers.