Tucson Home Loan Interest Rates Climb
June 8, 2007
Post Tags: elephant-in-the-room , mortgage-interest-rates-climb , tucson-buyers-market , Tucson-home-loan-interest-rates-climbing
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For some time now we have heard it is a buyers market in Tucson. The one warning sounded to many buyers that keep waiting for asking prices to come down further has been the other side of the balance scale, home loan interest rates.
While asking prices continue to decline slowly, sale prices are stable and increasing slightly.
Now the Elephant in the room seems to be a rapid increase in home mortgage interest rates.
Figures based on 0 % origination 30 yr. fixed
- May 3 6.250 %
- May 18 6.500 %
- June 1 6.625 %
- June 7 6.875 %
There could be even further increase in the following weeks putting interest rates above the 7% mark for the first time in years. The last time it got this close was April 18, 2002 when the rate hit 6.96 %. This latest figure represents a 0.625 % increase in just a month.
Dow down 328.87 in two days
The stock market in the last two days has seen the Dow Jones Industrial Average dropped
- -129.79 points June 6, 2007
- -198.94 points June 7, 2007
The stock market has been due for a correction and most expected it this week. It could fall even further as the first week of June comes to a close.
The point being, when the stock market drops it usually doesn’t take it long to turn around. Just look at the history of the stock market for this year.
However, interest rates on home mortgages seldom drop as fast or as far. They tend to be more like gas prices. They go up quickly and come down slowly.
What this increase means to buyers
Back to our increase in interest rates. The difference between 6.250 and 6.875 over the life of the loan is $44,508.54. That’s not an insignificant amount. The monthly payment would increase by $123.64 from $1847.15 to $1970.79.
For many families this means they can’t buy as much house now as they could a month ago. They simply can’t afford the increase in the monthly payment.
I’m not saying you have to go our and buy now. That isn’t the point.
The point is simply basing your time to purchase on asking prices coming down could lead buyers to actually paying more for the house.
The savings on a decreased asking price could easily be wiped out by an increase in the interest paid on the money borrowed to finance the purchase.
Don’t get caught looking around the house and missing the elephant.
June 8th, 2007 at 12:06 pm
Hi Dave!
As I said here:
Foreclosure and the Subprime Buyers Comment
The only thing the Tucson housing market had going for itself was interest rates. The credit contraction is well under way all over the country. The consumers had to tap out at some point.
Consider these Factors:
1. Home prices are still absurdly high across the valley
2. No more easy money from Sub-prime sector ( Just google: ’subprime’)
3. Credit card Debt soared 9.2% last month (http://www.reuters.com/article/ousiv/idUSN0738048720070507)
4. Current Inventory shows approx. 5,800 MORE homes than the high historical mean of approx. 4,500
5. California buyers and retiree’s (the magic panacea) can’t sell their home to move here because their market is in the doldrums as well.
The interest rate is the keystone to this whole mess, and its going to go even higher. So now we have a high cost of entry to the housing market (prices) COUPLED with a long term debt burden in the form of interest. If you were a buyer what would you do? Something has to give…
The California buyers and retirees that you believe will buy up our inventory can’t move here. Their markets are getting creamed with double digit losses. Furthermore, if they have a HELOC of any kind or they bought in the last two years… they are trapped because the comps will not come in for what they owe. You can’t refi or sell a house that is worth less than you owe… unless you are willing to take a HUGE loss.
All real estate is local and to think a panacea from another state is coming on a white horse is a fairy tale that doesn’t end; happily ever after. We need a local base that is able to afford the local mean value. If we don’t… our market is non-functioning and sick. Econ 101.
Take a close look at the graph I posted in the other comment. This ride has just finished ticking its way to the top of the big bump. Now we get to feel the wind in our hair as it catapults downward rapidly. I’ve been right thus far…
June 8th, 2007 at 12:39 pm
Only time will tell. I’ve thrown out at least a dozen crystal balls and a few magic 8 balls none of which have been accurate so far.
All I can go by at this time is we are still selling real estate in Tucson.
June 8th, 2007 at 2:03 pm
Hi Dave!
I applaud your diligence and willingness to share. I wish you the best of luck in this market. Realtors (r) that have a solid reputation and actually add value will certainly sell homes in this market… you are probably one of them. The problem is there are so many Realtors (r) that don’t add value.
That said… I agree that time will be the judge of all of this. The sooner the NAR and sellers grasp reality and drastically reduce the price of these stucco boxes… the sooner we can get the housing market back on track. That is, if we can get the NAR and seller this message before the entire economy implodes.
There are a lot of really smart people warning of a severe disconnect in our economy right now. I don’t think these people should be labeled as wack-o’s, crazy’s, bears, pessimists, doomer’s, or whatever. They look at data with little emotion just as the Bull’s, optimists and others do. One should look at both sides of the coin before making a rational argument in one direction or another.
Logic prevails. Every-time.
June 8th, 2007 at 6:15 pm
great read Dave. I had a buyer in negotiation on a $560k home this week. The change in rates killed the deal. They were border line and it put them over the edge. We’re hoping the sellers will adjust over the next few weeks so we can sync up again. I know the home will still be around. Above $400k has really slowed in our market.