One of the things that amazes me the most about this housing bubble is that people who buy houses these days show no interest or concern for the absolute amount of debt they are taking on nor how long it will take to pay it off. Instead, we have become so short-sighted that all that matters is the monthly nut. Sure, I understand the pragmatism of focusing on the monthly mortgage payment, but surely one would think that overall debt accrual would enter into the buyer's thinking at some point.Well, if it is only the monthly mortgage payment that effectively governs how much someone is willing to pay for a house, then it is easy to understand that as interest rates go lower, the amount of debt one can "afford" to take on increases. As one can take on a larger loan for the same monthly mortgage "cost", the overall price of houses increases while the monthly mortgage payment stays about the same.
It seems reasonable then to suppose that the reverse process is equally true in a rising interest rate environment: the monthly payment must remain approximately constant. Given that interest rates are rising and the monthly payment must remain the same, then the only factor that is left to freely adjust is the absolute price of a house which must come down in a rising interest rate environment as long as the monthly payment must stay about the same. Either that or incomes rise.
Well, as incomes are not rising at a particularly perky clip -- suck it up sellers and deal with it:
1 comment:
I believe it will take a bit more for the sellers to face reality. That is becuase agents don't want to see commissions down, so they are keeping the pressure on.
I think a lot of the flippers are in wait and see, and as long as they can keep putting it in and out of the MLS - they are holding out. I am sure cashflow is not an issue for some in Marin.
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