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btd1981

Seattle.....warming up for a correction?

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http://www.seattletimes.com/business/real-estate/panicking-seattle-home-buyers-spooked-by-rising-interest-rates-rush-to-buy/

tl:dr - mortgage interest rates are rising in the USA. As the cost of a home loan continues to rise, buyers are climbing over each other to buy now before being priced out forever. Seattle case study here...

 

So, are they doing the right thing? Or would they do well to read up on early 90s British house price situation....

Do we need to bear this in mind if interest rates start to rise in this country? We've been there before, and while in recent years we've seen plenty of greed, perhaps there's not been so much of this kind of raw 'fear' factor. Perhaps there's scope for one last push in prices before the inevitable if this ever comes to pass - as people have demonstrated time and time again that as well as having short memories, collectively they can be incredibly, incredibly dumb.

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I think usa has a quite different different morgage model, where you fix the rate at purchase for the duration of the loan ie 25yrs. So yes its better to buy now. Unlike the UK where you get 5 year fixes etc, not 25 year fix.

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10 minutes ago, GreenDevil said:

I think usa has a quite different different morgage model, where you fix the rate at purchase for the duration of the loan ie 25yrs. So yes its better to buy now. Unlike the UK where you get 5 year fixes etc, not 25 year fix.

That's it.It doesn't take much research to work out you'rte going to get shafted if rates start rising and prices dropping.

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1 hour ago, btd1981 said:

But longer term, wouldn't falling prices mitigate increasing rates?

Of course, house prices depend on what your salary can afford to pay per month. If you can afford 1000 pcm, then at 1% you will get 10 times more than at 10%. 

Edited by GreenDevil

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2 hours ago, btd1981 said:

But longer term, wouldn't falling prices mitigate increasing rates?

Americans are also highly influenced by their monthly payments, which explains why around nine in ten choose a thirty-year mortgage over a fifteen-year or less. Even if the life-cycle cost of the latter is much lower and the available properties at that rate would more than meet their needs, if not desires, they tend to be influenced most by the immediate impact of a lower monthly repayment and make their decision from there.

Not unlike the "you could own this home for as little as £x per month" you've probably seen more times than enough.

If you're looking at homes regularly and notice those monthly figures are rising as quickly as they must have been recently, and you make your decision in a similar way to the average person, then you would feel pressure to buy in case they get (further) out of reach. All other things aside, there's no reason to believe the same wouldn't happen in the UK, given we know how little thought is given to life-cycle costs.

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Seattle is reasonable value, in my opinion, and we've already had our severe correction. Most of the new jobs are 6 figures. Most of the companies are household names: e.g. Boeing, Amazon, Costco, Starbucks, Expedia, Microsoft. Everyone and their dog wants to have an office here to take advantage of the techies. Housing inventory is extremely low and demand is extremely high. During the recession there were 300 houses for sale in my desirable neighbourhood; there are a couple of dozen now. We have Chinese buyers moving demand south from Vancouver and Californians moving north; many have cash. I don't think one measly rate rise will do anything to dampen demand for too long. Might see a dip in prices next year but that would be expected and quite welcome.

When I look at the pathetic salaries back home in England and the high house prices it makes me laugh. You'd have to be a GP back there to earn anything like a mediocre software developer here. In my opinion the British housing market will be in more peril, should the Fed raise rates; Britain will end up either importing even more inflation or face having to raise its own rates.

Edited by Xurbia

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14 hours ago, GreenDevil said:

Of course, house prices depend on what your salary can afford to pay per month. If you can afford 1000 pcm, then at 1% you will get 10 times more than at 10%. 

House prices only depend on what buyers can afford if there is a shortage of houses and buyers need to competitively bid.

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I guess the point I'm trying to make, poorly, is that in this type of scenario prices are increasing due to bidding wars brought about by people competing to buy something before they believe they will be priced out.

The winners of these bidding wars will be people with the greatest buying power, which means that as interest rates continue to increase, the pool of buyers will be increasingly those less-able to service the increased monthly payments they command.

I can only see one trajectory for prices in the medium term, which could be beneficial to those able to hold their nerve.

Okay so this does not account for the investor factor...

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15 hours ago, Xurbia said:

Seattle is reasonable value, in my opinion, and we've already had our severe correction. Most of the new jobs are 6 figures. Most of the companies are household names: e.g. Boeing, Amazon, Costco, Starbucks, Expedia, Microsoft. Everyone and their dog wants to have an office here to take advantage of the techies. Housing inventory is extremely low and demand is extremely high. During the recession there were 300 houses for sale in my desirable neighbourhood; there are a couple of dozen now. We have Chinese buyers moving demand south from Vancouver and Californians moving north; many have cash. I don't think one measly rate rise will do anything to dampen demand for too long. Might see a dip in prices next year but that would be expected and quite welcome.

Areas with high wages and productive economies can nonetheless experience severe recessions and property crashes, see for example Silicon Valley in the early 1990s.

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