Mortgage rates skyrocketing !

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Mortgage rates skyrocketing !

Andrey Y.
Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes

Hello all. Apparently, the best terms on an investment property are currently 5.25-5.375% with 25% down, and 5.75-5.875% with 20% down, this is with a 740++ credit score. 30 year fixed. This is what a reputable lender told me. Is this what you guys are seeing? Would love some recommendations for lenders you like that can do better. Out of my current investments, the worst rate is 4.5%.

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Russell BrazilBusiness Member
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
8y

Owner occupant rate was 4.75% this past week, so yes those rates are in line. Skyrocketing isna bit of hyperbole with rates still on the very low end historically. In the mid 2000s when the owner occupant rated dipped to 6% most of us felt that was the lowest they would ever go in our lives.

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  • Nancy P.
    Naperville, IL · Member since 2018 · 330 posts · 357 votes
    8y
    Originally posted by @Jay Hinrichs:
    Originally posted by @Russell Brazil:
    Originally posted by @Andrey Y.:
    Originally posted by @Russell Brazil:

    Owner occupant rate was 4.75% this past week, so yes those rates are in line. Skyrocketing isna bit of hyperbole with rates still on the very low end historically. In the mid 2000s when the owner occupant rated dipped to 6% most of us felt that was the lowest they would ever go in our lives.

     Hmm.. thats interesting. You thought rates would never go below 6%. Surely they have in the past?

    I am a buyer at 6% or below. Above that, seems a tad risky.

     Freddie Mac has only tracked rates since 1971, and they are our best source. The first time they tracked a below 6% was in January 2003. They bounced around from 5.5% to 6.5% for a couple years before rising well above 6% in 2005...then it took the housing collapse and operation spin from the fed to push them back below 6% at then end of 2008 where they continued their downward trend to the low 3's.

    Even where they are today is historically low. While you may think there is risk in a 6% rate, we will eventually get back to a normalized interest rate enviorment and you will yearn for rates that low in the future.

    we just had this conversation with our banker yesterday.. of course those who entered the market in the last 10 years only know HYPER low rates so it seems like rates are high.. those of us who have been doing it for decades and like me in 77 ish bought my first owner occ the rate was 9% and I felt lucky to get it.. rates in the mid 80s went north of 15%..

    6 to 8% is basically historic norms for the last 25 years anyway.

    and yes if your metric of a good deal is positive cash flow with ONLY 20% down then load up before its gone.. most west coast markets this even cash flow is more like 30 to 50% down so that is the norm.. its not norm to positive cash flow with only 20 to 25% down. 

    I know I'm showing my age....first house purchase in 1988 was TWELVE percent.  Before we all had a computer, I had a little booklet which showed you the cost per month per $1000 loan at various rates.  I came across this booklet last year...the lowest rate in there was nine percent!  So yeah,  rates are going up,  but are still low.

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    8y
    Originally posted by @Sam Josh:

    A lot of people are quoting historically low rates even as they keep rising. But I am wondering if that is even valid given we are at all time highs on asset values. So why would it make sense to compare a 10% rate on a home mortgage in 1982 for a home that cost 125k to a 5% rate on the same home that today costs 1.5 million. Granted we have higher income levels but asset prices have gone up a lot. I think people are under estimating the power of high interest rates and the QE roll back on liquidity. I can’t see why that will not put a damper on RE prices or rents once the Fed has tightened further and the impact of those changes start to flow broadly through the economy.

     Nearly every point in history is a time of all time high for asset prices. Thats how these things tend to work, prices rise over time. 99% of time that has happened ha been an all time high at that moment in time.

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  • Peter TverdovBusiness Member
    Developer · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
    8y
    Originally posted by @Cesar S.:

    Where have you seen that? I live in Union county and I've seen increases for nearly all towns within the county.  Same for Hudson where I have two rentals.

    Westfield

    [email protected]732-289-3823
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  • Jesse Smith
    Rental Property Investor · Kansas City, MO · Member since 2018 · 86 posts · 38 votes
    8y

    I just locked the following with B of A last week:

    • 5.125%
    • 30yr fixed
    • zero points
    • 800 credit score

    During the negotiations, I was comparing B of A and Wells Fargo.  Both of them cancelled their initial offer, citing a jump in the 10-yr treasury rate.  I had to play them against each other to get the rate back to the original offer. 

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  • Vaughn Smith
    Property Manager · NJ · Member since 2017 · 786 posts · 396 votes
    8y

    @Andrey Y. Im not a mortgage banker/broker but those rates seem in line with what I'm hearing. Keep in mind that rates are expected to continue to climb in the near future so even though you may not be comfortable with these rates it maybe best to pull the trigger now on a solid deal than to wait. Rates also ebb and flow so theres a chance that if you buy that great deal today you can refi to a lower rate later on.

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    8y
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  • Andrey Y.
    OP
    Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    8y
    Originally posted by @Russell Brazil:

    Looks like a totally inverse relationship. Rising rates usually leads to lower home values. Do you think picking up a couple Turnkey properties right now may not be the best idea?

    1Reply
  • Cesar S.
    Investor · Jersey City, NJ · Member since 2016 · 84 posts · 11 votes
    8y

    @peter t.  Westfield is just one town, most other towns have gone up substantially...

    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    8y
    Originally posted by @Andrey Y.:
    Originally posted by @Russell Brazil:

    Looks like a totally inverse relationship. Rising rates usually leads to lower home values. Do you think picking up a couple Turnkey properties right now may not be the best idea?

     I figured people would see what they want there.  There is about a dozen points that show an inverse relationship and a dozen other points that show the opposite in that chart.   Also note, that the home prices on the chart are inflation adjusted, which doesnt show the best information as interest rates are a factor and responsive to inflation.

    If there was an inverse relationship, you should be able to flip one of them over and have the same exact shape.  But there are many areas that simply do not correspond. Such as prices rising 250% in the late 70s during a rising interest rate enviorment, we also see the spike in interest rates in about the 90s on this chart at the same time as a spike in interest rates.

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    8y

    What Ive done here is circle 9 points where interest rates and home prices did the opposite of what is being argued here. Rates going up while homes prices going up, or vice versa falling rates with falling home prices.  You can easily do the opposite and chooe places where they do correlate.  The effects become even more pronounced in a housing price chart of nominal values....as nominal value since 1963 have only gone down twice.  The housing collapse of a decade ago, and from 1990 to 91. Other than those 2 blips, housing prices have been purely ascending. 

    But thats the point, the correlation one expects doesnt exist, as Shiller points on Irrational Exuberance. 

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  • Michael Plante
    Deland, FL · Member since 2017 · 2k+ posts · 1k+ votes
    8y

    There is no relation between interest rates and house prices.

    Why?

    I have no idea but that is a fact.

    BUT if I had to take a guess it would be interest rates go up, as it is now, as the economy does better so more people have more money.

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  • Corbin Wafford
    Property Manager · Louisville, KY · Member since 2017 · 49 posts · 24 votes
    8y

    Take a look at this video - gives a great/short indication of the housing market, specifically on rates:

    Market in a Minute

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  • Andrey Y.
    OP
    Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    8y
    Originally posted by @Russell Brazil:
    Originally posted by @Andrey Y.:
    Originally posted by @Russell Brazil:

    Looks like a totally inverse relationship. Rising rates usually leads to lower home values. Do you think picking up a couple Turnkey properties right now may not be the best idea?

     I figured people would see what they want there.  There is about a dozen points that show an inverse relationship and a dozen other points that show the opposite in that chart.   Also note, that the home prices on the chart are inflation adjusted, which doesnt show the best information as interest rates are a factor and responsive to inflation.

    If there was an inverse relationship, you should be able to flip one of them over and have the same exact shape.  But there are many areas that simply do not correspond. Such as prices rising 250% in the late 70s during a rising interest rate enviorment, we also see the spike in interest rates in about the 90s on this chart at the same time as a spike in interest rates.

    I agree, there are many areas that show an inverse relationship and many areas that show no correlation or direct correlation during very short periods. However, the "general trend" is obviously an inverse one. If you showed the graph to a clueless high school student, they would come to that same conclusion.

    1890 --> 1920 INVERSE (clear)

    1920 --> 1970 INVERSE (clear)

    1970 --> 1995 High interest rates but flat prices adjusted for inflation (no correlation)

    1995 --> 2010 INVERSE (clear)

    I don't think you could argue with the data. In general, there is an inverse correlation. I don't think you need to be a math whizz to see it.

    1Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    8y
    Originally posted by @Andrey Y.:
    Originally posted by @Russell Brazil:
    Originally posted by @Andrey Y.:
    Originally posted by @Russell Brazil:

    Looks like a totally inverse relationship. Rising rates usually leads to lower home values. Do you think picking up a couple Turnkey properties right now may not be the best idea?

     I figured people would see what they want there.  There is about a dozen points that show an inverse relationship and a dozen other points that show the opposite in that chart.   Also note, that the home prices on the chart are inflation adjusted, which doesnt show the best information as interest rates are a factor and responsive to inflation.

    If there was an inverse relationship, you should be able to flip one of them over and have the same exact shape.  But there are many areas that simply do not correspond. Such as prices rising 250% in the late 70s during a rising interest rate enviorment, we also see the spike in interest rates in about the 90s on this chart at the same time as a spike in interest rates.

    I agree, there are many areas that show an inverse relationship and many areas that show no correlation or direct correlation during very short periods. However, the "general trend" is obviously an inverse one. If you showed the graph to a clueless high school student, they would come to that same conclusion.

    1890 --> 1920 INVERSE (clear)

    1920 --> 1970 INVERSE (clear)

    1970 --> 1995 High interest rates but flat prices adjusted for inflation (no correlation)

    1995 --> 2010 INVERSE (clear)

    I don't think you could argue with the data. In general, there is an inverse correlation. I don't think you need to be a math whizz to see it.

     Well then you should easily then be able to do what John Paulson did and make yourself $5 billion by shorting housing in the coming years. Let me know how it works out.

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  • Andrey Y.
    OP
    Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    8y
    Originally posted by @Russell Brazil:
    Originally posted by @Andrey Y.:
    Originally posted by @Russell Brazil:
    Originally posted by @Andrey Y.:
    Originally posted by @Russell Brazil:

    Looks like a totally inverse relationship. Rising rates usually leads to lower home values. Do you think picking up a couple Turnkey properties right now may not be the best idea?

     I figured people would see what they want there.  There is about a dozen points that show an inverse relationship and a dozen other points that show the opposite in that chart.   Also note, that the home prices on the chart are inflation adjusted, which doesnt show the best information as interest rates are a factor and responsive to inflation.

    If there was an inverse relationship, you should be able to flip one of them over and have the same exact shape.  But there are many areas that simply do not correspond. Such as prices rising 250% in the late 70s during a rising interest rate enviorment, we also see the spike in interest rates in about the 90s on this chart at the same time as a spike in interest rates.

    I agree, there are many areas that show an inverse relationship and many areas that show no correlation or direct correlation during very short periods. However, the "general trend" is obviously an inverse one. If you showed the graph to a clueless high school student, they would come to that same conclusion.

    1890 --> 1920 INVERSE (clear)

    1920 --> 1970 INVERSE (clear)

    1970 --> 1995 High interest rates but flat prices adjusted for inflation (no correlation)

    1995 --> 2010 INVERSE (clear)

    I don't think you could argue with the data. In general, there is an inverse correlation. I don't think you need to be a math whizz to see it.

     Well then you should easily then be able to do what John Paulson did and make yourself $5 billion by shorting housing in the coming years. Let me know how it works out.

    I don't think being cynical helps anybody. Also, I have no clue if interest rates will go to 6% and stop there, or just keep going straight up. Do you?

    Also, I have no desire or time to undertake shorting the market. I am a physician, not a computer/engineer/finance nerd. I am happy with my income and job, and have zero interest in "shorting" anything :)

    0Reply
  • Bobby Woell
    Member since 2018 · 6 posts · 2 votes
    8y

    I was approved yesterday at 5.7% for a 30 year fixed on an investment property. 20-25% down.

    0Reply
  • Ray Loveless
    Investor · Highland, UT · Member since 2018 · 70 posts · 23 votes
    8y

    Last year I got a 15yr fixed on a non-occupied investment property(4plex) at 3.875%

    1Reply
  • Venu Vedre
    Rental Property Investor · Davidson, NC · Member since 2017 · 17 posts · 4 votes
    8y
    I am working with a Bank of America guy and he is offering 5.0 % Interest Rate with 25% down (30Y fixed) on an investment property. For a 7/1 ARM he is offering 4.5% Rate.
    0Reply
  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    8y

    Took me awhile but I got through most of this thread. . . . and I’m still breathing.

    In my opinion, I think that this entire argument of “does interest rate hikes equal lower housing prices or the reverse” and basing your argument on that one sole item based on that one chart is the detriment to your argument. It has been shown by many who are much smarter than me (which isn’t saying all that much actually) that rising rates do not necessarily equate to lower house prices. There are many other factors that come into play which is why that one 100 year graph shows it goes both ways (no correlation). Sometimes, rate hikes have resulted in house hikes, and sometimes the opposite. One must study what else was going on during that timeline to figure out what items actually weighed in.

    Higher interest rates do negatively affect the affordability index IF no other factors are involved. But when does that happen? Often you have wage hikes or inflation, or hyper inflation, or booming economies or depressed economies, or higher unemployment rates, and the list goes on.

    Wall Street and the large banking institutions had a huge impact/role in the 2002-2007 housing boom and in that same time, interest rates went up. A better argument for why interest rates went up as did house prices could be blamed more on those parties “interference” and not the rate vs price argument.

    Then again, what do I know!

    Regarding the thread title, I would state that the rates are not “skyrocketing” but merely being adjusted upwards and still well below the national historic average.

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  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    8y
    Originally posted by @Sam Josh:

    Mortgage rates reflect the Feds decision to tighten. What this means is a gradual but sure path to less liquidity in the market causing a slowdown in the investment cycle. Eventually this will translate into subdued economic growth and a slowdown or a stall in Asset prices.

    Mortgage rates are at their highest in 7 years. They are historically still low but compared to 7 years back asset prices have gone up, in some cases doubled or tripled. So the interest rate is going to appear more expensive now than back in 2011. Imagine 5% on a 1.2m home vs 5% on the same home that cost you 500k in 2011.

    Fact is last two times the Fed embarked on a tightening spree (2000 and 2006), the outcome was a recession. A lot of 5 year ARM resets are on the horizon and these rates could stress property owners who are not prepared for higher refi rates.

     Do you think the rates should have stayed low forever?

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  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    8y
    Originally posted by @Hal Thompson:

    @Russell Brazil I'm not arguing that there is a perfect correlation between interest rates and housing prices. The answer to your question about rising rates and rising prices between 2002 and 2006 is that when rates spiked between 2005-2006, this was the setup for the biggest housing crisis in 100 years. Borrowers had locked in short term, low interest rate loans prior to that period, and when the interest rates reset after the inital fixed rate "teaser" period, the whole market imploded.

    It is true that there is less subprime borrowing now, and generally loan terms are longer, and so a dramatic crash like last time probably isn't in the cards. But the correlation between interest rates and price still holds.


    This time around, you have relatively stagnant wage growth coupled with massive asset price inflation. Why has there been massive asset price inflation? Because interest rates have been effectively zero. You cannot get ahead by saving, so that money has to go into financial assets like stocks, bonds and real estate. However, as interest rates rise (and they have to rise due to inflationary pressure from all the money that has been pumped into the economy), the housing market must fall.

    http://www.businessinsider.com/us-home-prices-outp...

     Just for the record, the vast majority of foreclosures were in the prime market.  Subprime was a large contributor to the crash, but borrowers treating their houses like ATM machines,  lenders providing the capital with guidelines written by  Wall St hedge fund guys who were steady buying the paper while being egged on by legislators was what caused the crash.

     http://fortune.com/2015/06/17/subprime-mortgage-recession/

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  • James MasottiPro Member
    Rental Property Investor · Washington Township, NJ · Member since 2015 · 1k+ posts · 976 votes
    8y
    Originally posted by @Stephanie P.:
    Originally posted by @Sam Josh:

    Mortgage rates reflect the Feds decision to tighten. What this means is a gradual but sure path to less liquidity in the market causing a slowdown in the investment cycle. Eventually this will translate into subdued economic growth and a slowdown or a stall in Asset prices.

    Mortgage rates are at their highest in 7 years. They are historically still low but compared to 7 years back asset prices have gone up, in some cases doubled or tripled. So the interest rate is going to appear more expensive now than back in 2011. Imagine 5% on a 1.2m home vs 5% on the same home that cost you 500k in 2011.

    Fact is last two times the Fed embarked on a tightening spree (2000 and 2006), the outcome was a recession. A lot of 5 year ARM resets are on the horizon and these rates could stress property owners who are not prepared for higher refi rates.

     Do you think the rates should have stayed low forever?

     That sounds wonderful! Can you arrange for it?   :-)

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  • Mark S.Pro Member
    Rental Property Investor · KY · Member since 2013 · 1k+ posts · 539 votes
    8y
    I closed about a month ago on a SFR. 20% down, 30-year fixed, 5.25% with 1.3 points (ended up being about $800 and breakeven was about 4.5 years). 800+ credit score.
    1Reply
  • Steven Gesis
    Investor · Miami, FL · Member since 2015 · 1k+ posts · 390 votes
    8y
    Originally posted by @Caleb Heimsoth:

    Yep that’s right. Just google the current mortgage rate and then add .875 or so percent to that. Assuming you have good credit that’ll give you an idea

     A good rule of thumb, have not seen that, but you are spot on. Rates are rising, but they are not so bad, also considering real estate returns can be in the double digits a small shift on one side is still not enough to destabilize demand for investment in Real Estate, different marketplaces will still always offer various results (eg. Miami .vs. Kansas City)

    1Reply
  • Calvin Lin
    Investor · Raleigh, NC · Member since 2015 · 81 posts · 210 votes
    8y

    Just closed on my new primary SFH in Cary, NC last week, 15 years at 3.625%, 0 points, Wells Fargo.

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