Form The Times "Then the slide started. On the face of it, this didnât appear to be a sharp fall: from their 1989 peak to the 1995 trough, average house prices fell 13.2%. Over six years, thatâs not too drastic. However, the headline number is misleading. It was a period of high inflation â far higher than today. The fall in house prices may appear modest, but in real terms â taking general inflation into account â it represented a 34% decline. After prices started to recover in 1996, they took just two years to get back to the level of 1989. "
Interest rates in the UK are not particularly high. Not by historic standards. If you follow the argument, the price of a house would come down enough that the payments wouldn't be the problem. And furthermore, high rates mean all those ARM holders would end up losing their homes (but not the fixed holders, of course) to foreclosure, which would put more supply on the market. Its pretty much, IMHO, the definition of insanity to buy in today's market with an adjustable rate mortgage. At least with a fixed rate mortgage, your losses are limited; with an ARM, technically, your losses are almost unlimited as the lender can just keep jacking the interest rate up. The payments themselves wouldn't change; I'd rather pay interest, than pay principal. Interest payments are tax deductible, principal payments are not. Its better to buy an asset with deductible interest at a high rate of interest, at a low cost, than it is to buy an asset with deductible interest at a low rate of interest and a high cost.
sorry your analysis is way too simplistic. for rates to hit 15%, there would have to be massive inflation, which means assets would generally increase and wages would skyrocket. that could easily prop up home prices.
First of all: ONLY 5% of mortgages are even in some stage of default.....not foreclosure.... Lenders are working on weak borrowers....bottom probably already here in most places....problems in most over-hyped markets to come... Most people just want to buy home, get moved, go back to real job..... Real estate speculators have different outlook... As said, 15% would mean big inflation in real estate assets... Fed won't let rates go that high..... Not news to say: 95% of borrowers paying loan on time !!! SteveD
pitz: OK,the interest rate is not particularly high if you go back 20 years but it's still around the highest levels it's been for 6 years and I hardly think the BOE is going to start raising them any time soon(unless they wanted to cripple their own housing market,which is widely regarded as being on a down-slope too) The point here where it's kind of strayed is that how long will it take for mortgage rates to be 10-15%?If anyone is seriously waiting for that to happen before they make a purchase,they'll be waiting for a long,long time. One can only deal with the situation at present - low rates and some good deals.If anyone thinks house prices are going lower then keep wasting your money on rent and don't buy anything.Or better still,waste everybody's time looking at homes with no intention of buying.
Suntrust Bank bringing back thier Alt-A next week,,, secondary lending for less than perfect borrowers. Either they have balls, see a bottom or want to be first out of the gate. They played the boom pretty well, they never lowered thier standards. So what does this mean, cheap homes, cheap money to borrow, lax lending standards.???.. sounds like 2004. E.F.
Prices do not go up only due to an inflation, prices also go up due to a demand. Whole world began to use more commodities. Oil at $110 has nothing to do with USA inflation - speculation and demand.
But the houses are far from cheap, and interest rates are on their way up. With official inflation now at ~4%, and inflation in almost every commodity well into the double digits, it will likely be a long time before you ever see interest rates this low again on mortgages.