HWY to hell, AC/DC !!!!!

How long does it take for the houses prices to drop once the mortgage rates rise?

Also, does it seem like everything on the market right now is priced about10% higher than they were 5 months ago?

Well said. Yesterday was the time to lock in 5 or even 10 year rates. Since yesterday is gone, today is the next best time, not tomorrow. Mortgagers won’t see these rates again for many a moon.

Jones “Just a note last year (end of Q2) I was inquiring about mortgage rates with my mortgage broker and she advised that projections for the end of the year were 7-8% for the 5yr fixed rate mortgages. I agree with Mike that 8% mortgages aren’t too far off, much like people professed we would never reach 10% unemployment…we’ll see.”

7-8% mortgages are pretty much a “sure thing” with the current economic path we are on. Too little cash available (savers/investors) wanted by debtors (banks, companies, gov’ts) = higher bond rates = higher mortgages. Cash is becoming the very “HOT” asset to have today. To put it into RE terms, it’s a hot “Buyers Market” for those with cash to those who want it.

Lina “I realize the rates go up but my question is, what is more important? The price of the property or the rate you are buying it at? ?”

The winner is the person who saves up the highest amount of downpayment. You pay as much in interest in 25 years as the house is worth with a low downpayment, so if you can save up 25%, that is hugely in your favour.

According to the page you referred me to, it says “The average mortgage rate for the past 25 years is 10.4%” which is much higher than I thought was 8%, so thanks for the correction.

http://www.mississauga4sale.com/rates.jpg

“According to your theory, that should increase house prices (since they should follow inflation), not reduce them”

House prices follow the opposite of inflation, it’s a common misunderstanding. Inflation brings high interest rates. Garth’s blog addresses this all the time: http://www.greaterfool.ca/

You will see in the 80′s we had a very high inflation and much higher interest rates than inflation and house prices were cut in 1/2 and took 23 years to recover.

But I’m not saying “prices will go back to 1998, or 1980′s, or 1643″, I’m thinking in the $300k’s as that is the prices they would be “historically” if nothing happend (boom or bust).

Mike

Since your home value will appreciate over a long time (and it almost always does), you would be better having more in the value of the house because you don’t pay tax on capital gains if its your home.

If you bought a cheaper house, and put your savings in cash or bonds or stocks etc then you would have to pay capital gains which is significant. Holding onto cash might seem look a good idea for 2008 but probably not in a couple of years…

If you wait to see if prices drop and you could buy a nicer house well thats a market timing decision that’s difficult to make now! The answer would have been obvious last year.

Also if your downpayment is less than 20% I would not suggest buying a house regardless of the rate.

As well, I do not understand those who refuse to “lock in” an interest rate. Unless you want a completely open mortgage, it is not unreasonable to have locked in a few months ago for 5 years at 3.7%. What people don’t get is that the variable rate is based on the BOC rate… but fixed mortgages are based on the bond markets. Thus, the ability to lock in at a low rate is not always directly related to the rate the BOC sets. Bank prime is still 2.25% but fixed rates have gone up.

And now that we are at record low 0.25% BOC rate, there is NO WHERE to go but up. Lock it in.

See this link for historic mortgage rates – don’t automatically trust “other bloggers data”:

http://www.mississauga4sale.com/rates-historic-mortgage-interest-1951.htm

I don’t what the calculation for average is and its probably between 7 and 8 somewhere going back to 1950. We were above twenty once in the last 60 years or so as you can see. The last 10 years or so we have almost always been under 8%.

Boom and busts happen and affect real estate prices. There’s nothing you and I can do about that.

I’m still not sure what makes 1998 so special?

Also inflation rose significantly when rates were high (5-12%) in the 80s – thats why rates were high. According to your theory, that should increase house prices (since they should follow inflation), not reduce them.

http://www.economics.utoronto.ca/jfloyd/modules/causinf.jpg

But I could be wrong…