Sunday, June 30, 2013

Rates to increase until 2017?

Interest Rates – Just Amazing

Chart here shows US 30yr bonds from inception a couple hundred years ago until now. The present price is certainly re-testing resistance and since bond prices are unlikely to rise from here, rates could be on their way up. Will this cause a global fall in house prices? Most frustrating for those who want to purchase a house. Certainly 5 or 10yr fixed mortgages look good at this point.

Posted by libertas @ 09:27 PM (7646 views)
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21 thoughts on “Rates to increase until 2017?

  • Don’t hold your breath lib!

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  • To be fair, he is talking about US 30yr bonds.

    The question is, when, not if rates rise. My big issue is that I am getting ready to purchase a house. It is just that point in life where one must. Should we wait and rent a few more years waiting for rates to rise?

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  • I’m in same situation too lib, but at least I think Carney will reduce rates further with lashings of QE too.

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  • >Should we wait and rent a few more years waiting for rates to rise?

    Well if you have found a place you like, at a good price, and can afford higher interest rates, I think you should prob go ahead.

    My view [still] is of long term inflation for the UK for many years – it’s the lesser of 2 evils for UK & US government.

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  • @2

    I must admit that I never once considered for a second that you visit this site simply to research the best timing for a home purchase.

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  • Reticent. The ONLY reason we seek a house price crash is so that we can afford a home!!

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  • Cripes, I’d also join petrol price crash, food price crash, you name it. We need prices to fall, and if rates are at the beginning of a 30 year bull market, then we may just get deflation, that is if Carney doesn’t devalue Sterling, but that will only be one part of the process.

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  • britishblue says:

    One of my business interests is a removal company. In the South West London I have seen house inflation like never before in the past couple of months. The official statistics just don’t show it. People are being gazumped all over the place in Richmond upon Thames and the surrounding areas. I am a long term HPC follower and sold my home in London at what I thought was the peak of affordability in 2003. It had already risen by 150% in 5 years, so I don’t think I was wrong on affordability in normal market conditions. ( I say this in case I get accused of being a vested interest, which I am not). When in Kingston upon Thames a 2 bedroom shithole is going for £500k to £550k you know something is wrong. We are probably in the biggest dead cat bounce ever in the more desirable parts of London. Prices started rocketing the week after Cyprus went bust. To an outsider, London houses are still probably one of the safest assets in the world. However, the biggest bubbles are always inflated way above common sense and it is when people who have been right all along about prices being to high, starting to capitulate that you know you are in super bubble territory. I have days where I feel depressed when I see the price of property and others when I tell myself that some of the people who own, have been taking equity out for years and are living in a interest only mortgage time bomb in an asset that could drop just as fast as it went up.

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  • British Blue, interesting. Looks like massive capital flight from Cyrus, but then that could happen from other EU countries. Is it a dead cat bounce or the beginning of a new trend?

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  • Regarding house prices. I think the most important thing for people is to understand that it doesn’t matter the value of your home, the main issue is to own somewhere outright once you retire.

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  • [email protected] – I think there are several on this forum in the same boat. I got out in 2006; some days I think all these people who’ve borrowed beyond their means are just mugs, and will definitely come unstuck; and other days I think that politicians will do whatever it takes to protect those people, so actually I’m the mug. Only time will tell…

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  • @libertas, What is the point of owning your own home when the state will means test you for having it. you might aswell blow your cash then let the state look after you.

    I think that is code for – I give up!

    Re: Prices. The Irish thought prices could only ever go up in Dublin! That was until the government lost control and got bailed out by the Troika (Coming to a corrupt financial district near you soon).

    Whilst it seems that London prices will keep going up and will never fally, that assumes interest rates will remain at all time lows. I suspect that London will have a massive Irish type fall. Why? Well let me explain.
    Much of the demand in Ireland back in 2006/7 was demand from Investors (see where I am going). The demand from investors created an artificial market that inflated the entire economy (not so unlike London). Well anyway, once prices started falling the investor lead market bailed (like investors do, see gold for proof), that caused the investment market to collapse and exposed the real 50% lower market.

    When the investors jump ship, London property will sink. When could this happen? It will happen when there are more attractive investments and London prices start falling. The fall will snowball until fundamentals are discovered.

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  • I agree. The question is when.

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  • I sound like a bit of a fool jumping up and down saying the house price crash is coming..

    I think you can all agree that if the government had not interfered so much price would now be lower.

    I believe that the government have run out of ammo as the only trick left in the book is to nationalize housing via a Freddie/Fanny type organization, if this happens then I can see no reason why 30 year fixed mortgages will not be offered and if this is the case then if you can’t beat them then join them and borrow at 2.5% as it will cost the same as a 5/6% interest rate with prices 50% less.

    The biggest problem with housing now, especially within London is the risk, it would only take a 2% rise to cause an utter disaster. 30 year fixed issued by Carney over at BOE would kick the can until retirement.

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  • @7

    Yes, the Carney vs US bond market rout situation is clearly the clash to watch for the foreseeable.

    @8/11

    I feel for the STR crowd. I have met many of them and I always sympathise because I know they got the fundamentals right. However, I do subscribe to the opinion that most issues with house price inflation are down to people treating them as investments, not as homes. STR falls under that, IMHO. Its effectively shorting the investment property you don’t have, by selling your home instead. I realise that most people simply sold up with a view to buying a bigger place after renting for a couple of years (as opposed to trying to build up a property empire and live off the productivity of others). I also realise how unexpected it was that the profligate got bailed out (I think we can all agree on that). Sell up because you can’t afford the repayments, but selling up because you expect to buy back in for less is speculation. It just happens to be that you’re speculating upon a fall.

    That said, if I had owned a home and was the right age to take a punt back in 2003, 2005 or 2007, I likely would have done the same. It’s just that my views have changed since then.

    In any case, STR or FTB, we are all in the same boat now: bled by the government for the benefit of the feckless and unproductive.

    @8

    I can totally corroborate what you’re saying. SW London is going mental right now. Everyone I know between 25 and 30 is desperate to get on the ladder before HTB and the price rises it’s expected to bring. Most people I know who have bought in the last few years were limited by their deposit, not their income. A joint income of 60-100k is not that unusual for a FTB couple in London. Median income is 33k. With a 15% deposit, those people can afford to borrow 5x joint salary: 300-500k. But they need more than a year’s gross income in savings: 60k / 85% * (15%+3%) = 63.5k + fees.

    It is very hard to acquire that sort of money in your late twenties/early thirties. These people know that once HTB comes in, the buying power of everyone else in their generation will explode, because they’re not borrowing all of the income multiples the banks are offering them.

    Plus, as you say, there’s all the foreigners are buying up everything for cash in Richmond, Kingston and similar boroughs. Gazumping is back. Sales are falling through as sellers suddenly decide they can relist for more.

    The only comfort I take from all this is that the faster the bubble grows, the sooner the fall will happen. But, I’m not holding my breath. When Basel III comes in (2017/8?), I will have quite a bit more than the necessary 18% and the HTB shenanigans will have to end. All the FTBs will have massive student debt by then.

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  • @12

    That is key, I think.

    Investors are flighty. The more foreign money that comes in, the more chance of the market clearing next time around. They will leave first, then the feckless will get caught out.

    What’s frightening about buying now is that the feckless of 2007 have already been bailed out. Anyone who extends themselves fully now probably won’t be so lucky. But HTB is all about forcing people to extend themselves fully, as I said.

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  • @reticent – It sounds to me like the bankers in cohort with the government are trying to get FTB into high levels of debt (no shit), that’s what they did here in Ireland, then they pulled the plug leaving those people deep in dept with property worth 50% of peak.
    The beauty of this is the bankers can then buy up the property cheaply leaving the struggling debtors to repay their huge mortgages. I know the repossession and bankruptcy laws are a bit difference, but a little lobbying will see them heading in the same direction.

    Perhaps with Carney, they can buy another year or two and make the London bubble even bubblier? All you can do is sit back and hope that prices rise by 10% or 15% year on year because you know what will happen.

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  • happy mondays says:

    I nearly bought 1 month ago & with interest rates as they are could have nearly halved my rent, however value for money i would have to compromise a lot for the property i would have got compared to the property i would like, need another 30k.. I pulled out, & have resided to the fact that i wait for it to blow again or bug off abroad in a year or so.. The housing market here is crazy & you have to be crazy to buy into it ;p

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  • Some places have incredible prices. I’ve seen places in Devon with nice three bedroom houses just over £110k. Parts of Northants have four bed detached properties for £140k.

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  • britishblue says:

    Foreign investors buy for cash. So if the market turns, ( or a more attractive investment comes around the corner) they can just sell at an auction house for a 10-15% drop and be out in a couple of weeks. That’s hardly a risky investment compared to just about any other investment. Even when house prices crash, they crash slow compared to other investments. My guess is the European money will go back when the Euro finally implodes. Why would any rich Spaniard or Greek keep their money in their own countries now when they could park it in the UK. If the Drachma or Peseta comes back they could be buying up assets at half price in the reinstated currency. So how long can the Euro facade keep up? The other money coming in is the Chinese and likewise there are serious problems afoot in the Chinese economy and maybe the rich Chinese have learnt from the Russians: Park your money in the UK and you will be looked after.

    Interesting point about Dublin. We live in hope.

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  • “If the Drachma or Peseta comes back they could be buying up assets at half price in the reinstated currency. So how long can the Euro facade keep up? ”

    Why not buy today in Euros? Prices Today in many European countries are not so bad. For example, now I have moved to Ireland buying a place in the UK would be pure speculative madness compared to snapping up cheap prime Dublin and Cork properties.
    Far less risky outside the UK IMO as the UK not only has a pending property price collapse, but also a pending currency collapse, which in all fairness doesn’t really matter since the property will be repriced in devalued pounds.

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