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I know, up. But seriously, I've been looking to purchase my first home and have looked at a few communities. I thought about waiting about two years before committing to take the plunge, but, for a variety of reasons, I'm trying to speed up the process and own a house within a year.

One of the reasons I want to speed things up is it appears that interest rates are going to be rising, and soon. Furthermore, I'm wondering if a Trump presidency is going to accelerate the rate of interest rising. I live in Northern NJ, which is a very expensive area, so even little changes in interest rates can mean big $$$. And prices in the nicer suburbs here, while certainly lower than a decade ago, did not take a big hit like in many other areas and appear to be rising again. 

So, what do you experts think? Are huge increases on the way, or are increases likely to be small? Any chance the uncertainty of a Trump presidency could send rates down? Your thoughts are appreciated. 

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Rates have gotten ahead of themselves....as has the stock market.

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rated:
higher rates -> people qualify for lower morgtage limits -> home prices have to adjust for sales to happen -> lower prices.

If you are a saver - you should welcome higher mortgage rates.

I am also on the market for a home and my conclusion is that I will come out a net winner with a higher rates.

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Its NNJ. Firget about lower price. I dont think price actually went down here during 2008.

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You also have to remember that it's been at least ten years now that reasonable people have said "rates can't go any lower and in fact will start rising soon". That will eventually be correct, but exactly when turns out to be very complicated. I don't think you should alter your own plans or schedule around the idea. Once you're ready, get it done, but if things aren't lined up for you on any front, just keeping working on those. I can think of lots of considerations - down payment, income qualification, credit rating, location stability, local market conditions.

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puddonhead said:   higher rates -> people qualify for lower morgtage limits -> home prices have to adjust for sales to happen -> lower prices.

If you are a saver - you should welcome higher mortgage rates.

I am also on the market for a home and my conclusion is that I will come out a net winner with a higher rates.

 As we've previously discussed, the correlation between interest rates and house prices has always been rather tenuous because interest rates typically rise during periods of economic expansion and fall during economic contractions. During economic expansions house prices tend to increase inspite of increasing interest rates because people's incomes and consumer confidence also increases, which stimulates demand. The opposite tends to happen during recessions. Hence, it is quite common for us to see rising interest rates and rising house prices all at the same time.

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Given the dramatic pricing of this week in the treasury bond market, CNBC conversations and interviews. Increased interest rates are almost assured. Based on Candidate Trump's promises, I cannot see anything else but interest rates going up. Even my junk bonds increased in price by almost 20% this last week.

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geo123 said:   
puddonhead said:   higher rates -> people qualify for lower morgtage limits -> home prices have to adjust for sales to happen -> lower prices.

If you are a saver - you should welcome higher mortgage rates.

I am also on the market for a home and my conclusion is that I will come out a net winner with a higher rates.

 As we've previously discussed, the correlation between interest rates and house prices has always been rather tenuous because interest rates typically rise during periods of economic expansion and fall during economic contractions. During economic expansions house prices tend to increase inspite of increasing interest rates because people's incomes and consumer confidence also increases, which stimulates demand. The opposite tends to happen during recessions. Hence, it is quite common for us to see rising interest rates and rising house prices all at the same time.


At the risk of getting too technical - the correlation has a heavy dependency on the sampling interval of the data.

Two extreme examples:
1. Sampling interval - 30 Years. You look at 1956, 1986, 2016 - you will conclude that interest rate and home prices adjusted for inflation has a strong positive correlation.
2. Sampling interval - 1 quarter. Your data will be heavily influenced by shorter term economic cycles and the correlation will reverse for reasons you have already mentioned above.

There is no easy answer how to disambiguate this issue. In fact we were grappling with a similar problem last year at work where the credit risk for one of our counterparties was decreasing when they withdrew collateral!! On spending a month - the sampling period was identified as the issue in the model.

The prevailing thought is that interest rest alone is too inter-related with the other parameters that go into determining house prices. Therefore trying to consider interest rate outside of it's wider context is flawed. (I'm not a professionally trained statistician - so take these with a grain of salt). Indeed, I was once tasked with developing a PCA (Principal Component Analysis - a statistical tool for multi-variate analysis) based tool to try and answer which of the many different components/factors are the primary drivers for some complicated risk measures. In theory - it should be able to disambiguate between many inter-related parameters. It didn't work in practice, however - for the simple reason that I could not find enough computing power to crunch through a 100k X 100k covariance matrix for me within any reasonable amount of time. 

<Edited to add> None of these are meant to disagree with what you said. I think I just got way too technical just to say "you are right - the relationship is difficult to establish using empirical data. However, I still feel that such a relationship does exist since it is too intuitive not to, were we ever able to disambiguate other confounding factors." </Edited to Add>

 

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JW10 said:   Given the dramatic pricing of this week in the treasury bond market, CNBC conversations and interviews. Increased interest rates are almost assured. Based on Candidate Trump's promises, I cannot see anything else but interest rates going up. Even my junk bonds increased in price by almost 20% this last week.
  
Your junk bonds increasing in value is not evidence of expectation of increased interest rate.
They go up for two reasons:
1. Increased probability of repayment.
2. Decreasing interest rates on competing investments.

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Housing prices are inversely related to interest rates... low interest rates and cheap money policies are what allowed the housing bubble and high asset valuations to be possible.

Saying "I need to hurry up and buy before interest rates start rising" is effectively the same thing as saying "I need to hurry up and buy while housing prices are still high".

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puddonhead said:   <Edited to add> None of these are meant to disagree with what you said. I think I just got way too technical just to say "you are right - the relationship is difficult to establish using empirical data. However, I still feel that such a relationship does exist since it is too intuitive not to, were we ever able to disambiguate other confounding factors." </Edited to Add> 
Sure, the relationship does exist. What a lot of people do not realize, however, is that interest rate is just one of quite a few factors that affect housing prices.

Hence, the reason, for instance, during the great recession the housing prices were plummeting at the same time as the interest rates went down to their historic lows. Likewise, during the housing bubble, the prices were substantially higher although the mortgage rates were also much higher as well.
  

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We're already in historic territory for the length of our current economic growth. A recession is inevitable, and will likely happen within the next year or two. The fed will use their usual tool of cutting interest rates to stimulate growth, and we'll likely see negative interest rates like much of Europe has. 30 year mortgage rates will probably drop below 3%, and with a recession, there will likely be more distressed sellers to buy discounted properties from.

I would personally wait if I was in your area.

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puddonhead said:   higher rates -> people qualify for lower morgtage limits -> home prices have to adjust for sales to happen -> lower prices.

If you are a saver - you should welcome higher mortgage rates.

I am also on the market for a home and my conclusion is that I will come out a net winner with a higher rates.

  
Depends if you are in the market for a cheap or expensive house.

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avalon6 said:   puddonhead said:   higher rates -> people qualify for lower morgtage limits -> home prices have to adjust for sales to happen -> lower prices.

If you are a saver - you should welcome higher mortgage rates.

I am also on the market for a home and my conclusion is that I will come out a net winner with a higher rates.

  
Depends if you are in the market for a cheap or expensive house.
what do you mean?

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RealEstateMatt said:   ...with a recession, there will likely be more distressed sellers to buy discounted properties from.It's possible, but with the exception of the great recession, house prices tended to continue to go up during the most recent recessions.
  

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geo123 said:   RealEstateMatt said:   ...with a recession, there will likely be more distressed sellers to buy discounted properties from.It's possible, but with the exception of the great recession, house prices tended to continue to go up during the most recent recessions.Which ones ?
The early 90s recession pushed housing prices down. As did the early 80s recession.
In comparison to the average recession , the early 2000s recession was very mild; I dont think it provides a good datapoint.

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geo123 said:   
RealEstateMatt said:   ...with a recession, there will likely be more distressed sellers to buy discounted properties from.
It's possible, but with the exception of the great recession, house prices tended to continue to go up during the most recent recessions.
  

  Whether the housing market as a whole continues to go up or down during a recession doesn't matter. What matters is finding a good deal. With more distressed sellers, it's easier for an average person to have a chance at finding a good deal than during good economic times. 

Here in Houston we've had a massive layoff in Oil&Gas jobs over the last 18 months due to the fall in oil prices. That resulted in a lot of 6-figure earners losing their job and the industry as a whole still not hiring locally. This has created a large drop in prices for houses $500K+ since those high income earners have run out of benefits, savings, and now need to liquidate assets. I'm shopping for a house in good areas where in the Spring of 2015 the houses would have sold for 15-20% more. I'll probably pick something up at about 30% less. 

In OPs Target market of Northern NJ, if a recession hits within the next year or two and the stock market takes a decent hit, I would expect there to be some distressed sales in his area. Doing research and finding a deal on a distressed house at least 20% less than today's levels shouldn't be terribly challenging. 
 

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RealEstateMatt said:   
geo123 said:   
RealEstateMatt said:   ...with a recession, there will likely be more distressed sellers to buy discounted properties from.
It's possible, but with the exception of the great recession, house prices tended to continue to go up during the most recent recessions.
  

  Whether the housing market as a whole continues to go up or down during a recession doesn't matter. What matters is finding a good deal. With more distressed sellers, it's easier for an average person to have a chance at finding a good deal than during good economic times. 

Here in Houston we've had a massive layoff in Oil&Gas jobs over the last 18 months due to the fall in oil prices. That resulted in a lot of 6-figure earners losing their job and the industry as a whole still not hiring locally. This has created a large drop in prices for houses $500K+ since those high income earners have run out of benefits, savings, and now need to liquidate assets. I'm shopping for a house in good areas where in the Spring of 2015 the houses would have sold for 15-20% more. I'll probably pick something up at about 30% less. 

In OPs Target market of Northern NJ, if a recession hits within the next year or two and the stock market takes a decent hit, I would expect there to be some distressed sales in his area. Doing research and finding a deal on a distressed house at least 20% less than today's levels shouldn't be terribly challenging. 

But here's the thing as far as NJ (especially Northen NJ) is concerned... the area has gotten close to recession-proof in most 'burbs. Prices in the better 'burbs dropped maybe 10% - 15% from their peaks during the last "recession"... after they quintupled over the 20 previous years. And now they're starting to rise again. It seems that there is no shortage of NYC workers, while making salaries that most people would consider obscene, still getting priced out of Manhattan and/or Westchester County who are coming to NJ as a second or third choice and keeping prices high. 

I just have have a fear that higher interest rates may not have a huge effect on prices in this area. The townhouses I'm looking at (in Morris County) are in the very high 300s to mid 400s, and $9,000 - $11,000 in taxes per year on top of that. A big financial stretch for me at current interest rates, let along at increased ones. Move those same complexes to Bergen County (where I've lived almost my whole life and where I'd like to stay, but realize I can't afford a decent house there) and you're looking at starting prices in the mid-600s to low-700s, and a solid $15,000+ per year in taxes. Hardly recession prices. 

I don't know how people are doing it, but they're keeping the prices crazy high in this area somehow. And I'm afraid higher interest rates are going to have a minimal effect on housing prices here. The next batch of NYC transplants priced out of Manhattan will simply start moving over here and keep the prices high.

   

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zhelder said:   
RealEstateMatt said:   
geo123 said:   
RealEstateMatt said:   ...with a recession, there will likely be more distressed sellers to buy discounted properties from.
It's possible, but with the exception of the great recession, house prices tended to continue to go up during the most recent recessions.
  

  Whether the housing market as a whole continues to go up or down during a recession doesn't matter. What matters is finding a good deal. With more distressed sellers, it's easier for an average person to have a chance at finding a good deal than during good economic times. 

Here in Houston we've had a massive layoff in Oil&Gas jobs over the last 18 months due to the fall in oil prices. That resulted in a lot of 6-figure earners losing their job and the industry as a whole still not hiring locally. This has created a large drop in prices for houses $500K+ since those high income earners have run out of benefits, savings, and now need to liquidate assets. I'm shopping for a house in good areas where in the Spring of 2015 the houses would have sold for 15-20% more. I'll probably pick something up at about 30% less. 

In OPs Target market of Northern NJ, if a recession hits within the next year or two and the stock market takes a decent hit, I would expect there to be some distressed sales in his area. Doing research and finding a deal on a distressed house at least 20% less than today's levels shouldn't be terribly challenging. 

But here's the thing as far as NJ (especially Northen NJ) is concerned... the area has gotten close to recession-proof in most 'burbs. Prices in the better 'burbs dropped maybe 10% - 15% from their peaks during the last "recession"... after they quintupled over the 20 previous years. And now they're starting to rise again. It seems that there is no shortage of NYC workers, while making salaries that most people would consider obscene, still getting priced out of Manhattan and/or Westchester County who are coming to NJ as a second or third choice and keeping prices high. 

I just have have a fear that higher interest rates may not have a huge effect on prices in this area. The townhouses I'm looking at (in Morris County) are in the very high 300s to mid 400s, and $9,000 - $11,000 in taxes per year on top of that. A big financial stretch for me at current interest rates, let along at increased ones. Move those same complexes to Bergen County (where I've lived almost my whole life and where I'd like to stay, but realize I can't afford a decent house there) and you're looking at starting prices in the mid-600s to low-700s, and a solid $15,000+ per year in taxes. Hardly recession prices. 

I don't know how people are doing it, but they're keeping the prices crazy high in this area somehow. And I'm afraid higher interest rates are going to have a minimal effect on housing prices here. The next batch of NYC transplants priced out of Manhattan will simply start moving over here and keep the prices high.

   

  If buying a condo or townhouse in your desired area is already a "stretch", I think you know what the rest of the FWF community would recommend doing. 
You recognize that the prices are crazy high. Either it makes sense to continue renting indefinitely and save money every month, or wait until prices drop to a level that is reasonable.
 

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zhelder said:   
 

I don't know how people are doing it, but they're keeping the prices crazy high in this area somehow. And I'm afraid higher interest rates are going to have a minimal effect on housing prices here. The next batch of NYC transplants priced out of Manhattan will simply start moving over here and keep the prices high.

   


Many of those transplants commute 1-2 hour+ one way.

If you are open to doing the same thing - then you will get a lot more options within your budget range and lower.

I live 90-95 minutes from GCT. I can buy a 4000+sf house, on ~1 acre, in a good school area for ~$480k. For $400k, you can get a 2000sf house with everything else being same. A guy I worked with earlier went further out (2.5 hours to GCT) and purchased a direct waterfront fixer upper on 1 acre for less than 200k and fixed it up!

 

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Trump's calling for massive fiscal stimulus, both through spending (infrastructure and defense) and tax cuts (although skewed toward high earners). Combine that with his advocacy of protectionist trade policy (which is also inflationary), I think higher rates are almost inevitable.

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xoneinax said:   
geo123 said:   
RealEstateMatt said:   ...with a recession, there will likely be more distressed sellers to buy discounted properties from.
It's possible, but with the exception of the great recession, house prices tended to continue to go up during the most recent recessions.

Which ones ?
The early 90s recession pushed housing prices down. As did the early 80s recession.
In comparison to the average recession , the early 2000s recession was very mild; I dont think it provides a good datapoint.

  The early '90's recession related price drops were localized, as were the '80's declines. It's true that the early '00's recession wasn't as deep, although, as always, it all depends on the industry and the location. Regardless, in the '00's housing, pretty much nationwide, remained a bright spot.

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cestmoi123 said:   Trump's calling for massive fiscal stimulus, both through spending (infrastructure and defense) and tax cuts (although skewed toward high earners). Combine that with his advocacy of protectionist trade policy (which is also inflationary), I think higher rates are almost inevitable.
  They are going to be YUUUUUGE

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Hmmmm, my prediction is that rates will go up and down throughout the year.

OP why not refi NOW, and then refi again if the rates go down?

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delhel said:   Its NNJ. Firget about lower price. I dont think price actually went down here during 2008.
  I have been looking at houses in Summit, Millburn etc and the prices doesn't really make sense currently. I am expecting with the rising rates they will have to adjust accordingly than again it is a bet indeed.

rated:
Rates have gotten ahead of themselves....as has the stock market.

There may be a bit of fiscal stimulus coming....but it's going to be so minor it will have limited impact.

The Congress is still controlled by the same people that wouldn't spend on anything....these aren't the same Repubs that were in power during the early Bush years....they are dominated by budget hawks.

Some GOP leaders have already said Trumps infrastructure program is DOA.

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rascott said:   Rates have gotten ahead of themselves....as has the stock market.

There may be a bit of fiscal stimulus coming....but it's going to be so minor it will have limited impact.

The Congress is still controlled by the same people that wouldn't spend on anything....these aren't the same Repubs that were in power during the early Bush years....they are dominated by budget hawks.

Some GOP leaders have already said Trumps infrastructure program is DOA.

  Finally someone has replied that isn't drunk as f.

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rascott said:   
The Congress is still controlled by the same people that wouldn't spend on anything....these aren't the same Repubs that were in power during the early Bush years....they are dominated by budget hawks.

 

  cutting taxes is still spending

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