CNBC and housing bubble

L

Lights

i notice they talk about housing bubbles about 5 times a day. had some wharton professor on before, they talking about the 10 year yield. i was thinking.. if there was a housing catastrophe caused by a rising yield, wouldn't that smack the yield right back down. think the only thing that will cause housing catastrophe is 70'd style stagflation.

ie 100 dollar oil
 
Loss of jobs in a concentrated market and very high interest rates, i.e. 9-10%.

If rates go to 10% a large portion of people will not be able to afford a new home especially "starter" type housing for newly marrieds. But rates are not going to jump from 5%-10% over the next 60 days. It would take a few years to get there. Builders of these types of homes would be slowing down as demand slowed down. Not necessarily a drop in price as simply a slowdown in new construction.

With higher rates the demand will be met by the normal turnover of existing homes coming on the market through death, divorce, transfer etc etc.

A massive job loss in one market will cause prices to drop a fair amount.

Everything else is basic supply and demand.

Most traders on this board cannot understand that simple concept.

SteveD
 
It doesnt take much interest to kill a housing boom. If you can afford a 200k home at 5% you can only afford a 100k home at 10% So lets meet in the middle and see what happens if you can afford a 150k home at 5% you can only afford a 100k home at 7.5% So what will happen to all the homes of people with houses in the 300k 400k 500k range? For every 1% rate hike, you lose about 10% the value of your home (this isnt an exact science obviously just an estimation for the next 5% or so rate hike) You might not lose that much because of the Human factor (fear & greed) but definately the buying power of the regualar worker will change by almost exactly that amount. Someone who makes 30k a year now can get into around a 150k home where as if interest rates go to 7.5% he will only qualify for a 90-100k home (figure may vary by 10% or so) but you can see how big a hit the housing market will take if interest rates go much higher. Right now everyone has money to throw around. Dont fool yourselves....the housing market is a zero sum game too :) We are having record high forclosures right now and when the bubble pops the forclosures are going to be bad. Banks will flood the market with their cheaper forclosed homes forcing regular joes to sell their houses cheaper to compete and before you know it, its a downward spiral. I know some of you will argue that housing has consistantly increases for the last 100 or 200 years and blah blah blah...but just like a money manager that posts consistant returns always discloses in the fine print...."past performance is not indicative of future results." Personally my real estate is being liquidated as we speak just to show you I am putting my money where my mouth is.
 
You must log in or register to reply here.
Back
Top