Investing 102

[GregWeld]

Originally Posted by 68Cuda

Go look at historical rates from the 80's!
http://www.freddiemac.com/pmms/pmms30.htm

I remember my folks getting into a house at just under 10%.

What is "dangerous" about people shopping at these low rates is they listen too much to the realtors and some buy every bit of house they can "afford". Eight years ago when we moved here my bank told me they would loan me up to a certain amount. When they did my pre-approval letter for the realtor I asked them to drop that number more than 1/2. At the end of the day you still have to heat / cool / and pay taxes on that property! We knew what we wanted and needed, and the number we gave the realtor fit that. And, wouldn't you know, every house she showed us was just at or over that number!

Michael --- I think you are missing the point we were discussing. It's not that people will adjust to the rate at any given time. But what we were talking about is the fact that rates have been so historically low for such a long period of time.... that we're wondering what the consumer does when/if they begin going up. We've been in a period of years where 3 and 4% rates are the norm.... and while 5% is still quite good/low... will people be put off by what that does to their "affordability" and what they've become used to.

It takes the "move up" buyer to help a market along.... So now let's say the move up guy has a 3.5% mortgage.... His house is too small - he now has two kids -- his value is up... so he begins to shop... All the other houses in his area are also up in value... but now his new mortgage is going to be 5.25% and he needs to borrow 100K more to do the move up. Is this family mentally ready for such a large increase in their mortgage costs. So do they repulse and just stay in their current house... which is NOT helpful to the market for loans or for real estate sales and all the other things that come with that?!?! Sure 5.25% is still "low" --- but it's a large jump from where they were/are. That's the point.


BTW -- I had a mortgage at 15% back in 1980..... My business was a .75% above Prime borrower... in other words - a stellar account. I can tell you those were NOT good times. Inflation was off the charts. Sales sucked. The economy sucked.