Friday, September 12, 2014

Good luck unwinding that.

I've really gotten to the point where I'm so tired of people saying the Fed is going to raise interest rates - that I give up. Raise them already. I dare you.

A few days ago mortgage apps hit a 14 year low. And when I read the reason I thought it was complete bullshit. I saw the small bump up in interest rates (4.10%), but it only lasted a few days. All month I've been able to find a rate under 4%. If a few ticks up was enough to cave the market that badly - hold onto your hats. Apps dropped 3%, while refi's tumbled 11%. If rates go up much more they are going to tumble 100%.

All summer I've been posting about the rise in price markdowns, which seem to be consistent with the overall market. Just a week ago I posted that fully a third of the properties in my city were under markdown. Read: More signs of weakness in housing. Southern California seems to have about the same ratio of markdowns.

"The number of homes with reduced asking prices has risen sharply in recent months, a reversal from last years sellers market, when list prices seemed more like a floor than a ceiling.

In Orange county. the regions priciest market, about  one third of sellers have been forced to cut prices, according to data from real estate firm Redfin". Here.

All I know is - 17% of homeowners are still underwater. I am "technically" one of them. And prices have plateaued.

Those 17% in all likelihood have resets coming. I know because when I bought my house you couldn't get a mortgage without a reset. Mine was 10 years. My reset was in 2016.

Until recently I haven't thought this was much of a problem because these people have been paying a long time, and some I think are resolved to paying 6-7% interest. I know a guy who is still paying 7%. If you are still in your house right now, you have a LOT of skin in the game. So I'm not sure how troubled I feel about this. For now.

If rates start ticking up though, psychologically it is going to impact those 17%. Some of them might get tired of fighting.

I would be surprised if they did raise them. But the Fed is in a really fucked position. Rates have been low for so long - a generation might start to think this is normal. When rates go up -  it's going to be a really painful adjustment period.

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