Interest rates spiking--how will this affect your market?

Question

The last several weeks have seen a spike in mortgage rates. Near .75% incrrase on 30 year fixed. Is this enough to put a damper on your market?  What do you think the threshold rates are before cost of money hurts the market?

Do you think this rate inflation is healthy?  Will it keep the market from going too far, too fast?

Will higher rates change your strategy?

John Thedford · Answer

Albert Hasson yes I absolutely believe the numbers are manipulated. The government has a habit of telling stories to fit their agenda. I didn't say the economy isn't growing. I simply stated the inflation numbers don't represent what is really happening. The government has a convenient way of calculating unemployment. This fits their agenda. Is America crashing and burning? I don't think so...but on the other end of the spectrum the fact is our leaders choose to manipulate not only the economy, but also the facts. You mention a gallon of milk. How about beef? Corn? Wonder how many people on BP would state their cost of living has stayed stable or decreased in the last few years? Might make an interesting thread to read:)

Bryan Hancock · Answer

Fed controls don't necessarily control mortgage interest rates.  The story is more complicated than that.

I don't think that a modest movement in rates will matter much.  Half a point difference in historically low rates won't push a significant portion of the buyers out of the market.  If things continue trending north it will matter more, but 4% on 30-year money is still quite good.  We don't notice it impacting our buying pools in Austin, but that is probably because we have about 2 or fewer months of inventory so it shouldn't matter as much with supply so low.

Ryan Logsdon · Answer

That was outstanding, Albert Hasson.  Simple, elegant logic.

Albert Hasson · Answer

I agree with Kyle that the Federal Reserve has done an excellent job.  The Fed has the "dual mandate" of maximizing employment and promoting price stability (tame inflation) as prescribed by Congress.  The employment picture is steadily improving (175-200k new jobs created per month for the past several years) and inflation remains subdued.  When folks start questioning the government data and call it bogus I think it displays a lack of understanding/clarity about the macro economy.  
John, you may believe the unemployment numbers are BS, but then who is buying all the new homes being built, the newly laid off?  No way, it's people with new jobs/good jobs that are buying the houses here.  Here in Phoenix our new housing developments are selling out and it's not the hedge funds buying in these neighborhoods.
You can say the inflation numbers are bogus but what is that based on?  Don't know about you but I only pay about $3.30/gallon of gas which seems cheap to me.  America's energy boom will keep costs in check.  My property taxes have gone down 3 years in a row.  The cost of capital is low, low, low.  My city is abandoning temporary tax increases imposed during the recession.  Maybe a gallon of milk costs more than it did last year but my grocery bills seem to be stable.  
The problem I have with people questioning the data is they don't seem to question it when it suits their mindset.  Did you think the data was bogus when unemployment was north of 10% and we were losing hundreds of thousands of jobs a month?  Doubt it.

Kurt K. · Answer

Given our current GDP growth rate.

Jon Klaus · Answer

Whether economic growth is 0, 2, or 4 percent?

Kurt K. · Answer

My opinion is that 4% is still low. My personal opinion is that the around 6% rates are still reasonable levels, but no longer considered low.

Kyle Hipp · Answer

John. I have found a lot of insight from the website pragcap.com. It is a little out there at first but if you really give it a deep thought it really explains situations in the US, Japan, and Europe. I believe that the US stated inflation numbers weight housing at about 47%. Not housing prices but rather the equivilent rental rates which is actually lifting the number.

I do not think the QE policy is the best but has served its purpose.  As long as the productive capacity of the country is increasing the monetary policy must enable it.

Ravi Renduchintala · Answer

Rates are still at historic lows, and so it's only a matter of perception. It will get some people off the fence. Common consensus is that the Fed will keep its foot on the gas pedal till late next year and let rates rise slowly after that. Economy is still soft as evidenced by the latest job numbers and slowdown in manufacturing activity due to Eurozone weakness.

Jeff S. · Answer

Increasing rates will most likely move buyers to act now before they increase more. That goes on until the combination of increased prices and higher rates slows buying. It takes a while. It is hard to know just when things will slow but there will be speculators cashing in on quick turns as prices rise long after cash stops flowing from rentals.