Why housing costs are rising. Yes, rising.

I'm fully aware that, in general, home prices are falling sharply. But the recent run-up in mortgage rates is driving up the cost of homeownership (Work with me; one sign of intelligence is the ability to hold in your head two opposing ideas). From Zillow.com this morning: "... the average Los Angeles area homeowner will pay $2,280 more on their mortgage per year with today’s interest rates vs. if they had bought just two months ago."

Here's how Zillow breaks that down: "Los Angeles area mortgage APR’s on a 30-year fixed loan, to a borrower with good or better credit (credit score of 680+), have risen from 5.75% in April to 6.51% in June. In real  dollars, this means a buyer in Los Angeles who purchased a $482,500 home (area median home value), with 20% down, would have paid $2,253/ month on a loan secured at this rate in April, vs. paying $2,442/month on a loan secured in June."

More, from Zillow: That’s a difference of $190 more per month -– which translates into $2,280/ year, or $68,400 over 30 years..."

Th   Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com. 

       Photo credit: Bloomberg News

Comments

[passed on]

It's nice to see that the lowered FED rate that is fueling inflation and hyping commodities is being passed on to Joe consumer!

This is a lot less like being passed on and more like being p*ssed on by our illustrious friends in the banking industry.

[Laker]

puckhead wrote: "So in 20 years I'll have to spend $1.3 million for my BMW. It's actually not too bad because my salary will be about $7 million..."

yeah, toilet paper will have more value than $100 bills, as bread will be $100, gallon of gas $200...milk $150...
Go to japan, they make millions of yens in salaries...i guess they are all multi millionaires....

[Laker]

Dog Bite Lawyer wrote: "...You can always refinance the loan/interest, but you cannot change the purchase price....

Dog Bite Lawyer,
I thought so too until I heard Obama. If he gets elected, purchase price aka loan amounts would get changed....
courtesy of US tax payers....
wait and see,...or go with McCain.

[firesale]

"... the average Los Angeles area homeowner will pay $2,280 more on their mortgage per year with today’s interest rates vs. if they had bought just two months ago."

Thanks for that, ZILLOW. I guess the would be buyer's loss from increased rates is just gonna have to come out of the poor seller's asking price, too. Anything more we need to subtract before making our low-ball, sub-2001 price level offers?

[Expat]

More drivel from the NAR or an NAR shill.

It's simple people. You can only buy something you can afford. What is true for the individual is true for the average person. Whether or not an asset is rising is irrelevant to affordability. That is the fundamental lie you were sold. If you bought a home you could not afford but were convinced you could sell it at a profit later, ask yourself where you would then live. No one asked that question.

Basically, unless you were trading down from a house to a cardboard box, you were NEVER going to be able to afford your house in a market which was rising ten to twenty percent a year while real wages were stagnant.

So, again ignoring all the drivel about interest rates and anything else, the crux of the issue is affordability. And the principal measure we have is the Price-Income ratio. It is not pulled out of someone's ass; it is long-term and represents prudent, reasonable housing expenses without excessive debt and with a significant downpayment.

2.5 to 3.2 times median income. Just keep repeating that over and over. So if the median income is, as it is, about $48k , then the median house price should be between $120k and $154k depending on interest rates and the overall economy. More affluent areas also tend to have slightly higher P-I ratios since rich folk have more cash to blow on marble counters and Deepfreeze appliances.

So, next time some moron comes out and starts babbling about how prices have bottomed or it's time to buy or the market will drop another ten percent, just stop and think about the VERY LONG-TERM Price-Income ratio and do the math yourself. You will find that most estimates are still far too optimistic.

We are in the grips of a recession and the popping of the biggest housing/credit bubble EVER. Inventories are at record levels. Banks are not lending any more. The US consumer is BROKE.

I would guess that the Price-Income ratio needs to drop to UNDER 2.5 to clear inventory and become affordable to basically broke buyers.

Look for the median house price to drop to about $115k.
Then you can buy.

[Eckalectic]

So Ben Bernanke's rate cuts have killed savers, trashed the dollar (leading to higher oil prices), and led to Higher mortgage rates!

Heckuva Job Ben!

[Adolfo]

I nice to read through all those naive comments which are quoting the past. People wake up, the past is the past. Who is telling you guys that the interest rates are coming down again? The banks have to recover and they will get their money back. Fuel is at record high and will stay there. Soon we will see $6 for the gallon. So people, wake up and forget the past. By the way, in the past the housing value tripled within a few years.....

Take care guys and dream on with your refinancing.

[sheila]

There's more to it than straight income ratios - that is a gross over-simplification. Our purchasing power has been dropping precipitously, at roughly the same rates as housing prices have been dropping, so most of us (i'm not in the market) are in almost the same position as we were 2 years ago, as far as what house we can afford to buy, based on how much money we have to spend.

High inflation, extremely high fuel and healthcare costs, high food costs, higher import costs due to carbon markets, non-stop rent increases, increasing unemployment, decreasing employment benefits and stagnant wages are dovetailing with a period of reduced government services, dropping stock values, and enormous debts due to irresponsible spending which will cause taxes to increase in future administrations to pay for the folly of this one (the war alone will cost every family of 4 over $35,000 if they end it today).

Factor in the difficulty and high cost of borrowing, and we have a perfect storm - we are simply much poorer than we were 5-6 years ago, in terms of what we can actually purchase with the money we have. And NONE of these things is likely to improve in the next 5 years, most of them will get worse before they get better.

So yes, that will bring downward pressure on home prices, but I'm not sure that is the silver bullet you all think it is, since your purchasing power is circling the drain at roughly the same rate prices are dropping.

[Keating Five for 2008?]

For Laker - some facts.

McCain Quotes on the Economy:

Bailing out Bear Stearns necessary to protect economy. (Apr 2008)
Key is to not to bail out homeowners who speculated. (Apr 2008)
Things are tough now, but we're better off than in 2000. (Jan 2008)
May have to go further to fix the subprime lending situation. (Jan 2008)
Recession is partly psychological and not inevitable. (Jan 2008)
I'm well-versed in economics; I was at the Reagan Revolution. (Jan 2008)
FactCheck: Said--then denied--he needed economics education. (Jan 2008)
Impose some fiscal discipline to revive the economy. (Jan 2008)
Will be able to reduce war costs & have a stable Middle East. (Jan 2008)
Reform insurance to cover violent weather patterns. (Jan 2008)
To avoid recession, stop out-of-control spending. (Jan 2008)
Loss of economic strength leads to losing military strength. (Dec 2007)
Republicans have forgotten how to control spending. (Nov 2007)
AdWatch: Outrageous to spend $233M for bridge to nowhere. (Nov 2007)
FactCheck:Bridge-to-Nowhere never built; would serve 200,000. (Nov 2007)
FactCheck: Criticized "Woodstock museum," but skipped vote. (Nov 2007)
Distribute surplus: 23% tax cuts; 62% Social Security. (Jan 2000)
$9B of pork in current budget bills; cut subsidies. (Oct 1999)
For Balanced Budget Amend., & off-budget Social Security. (Jul 1999)
Apply surplus to Social Security, Medicare, tax cuts & debt. (Jul 1998)
Voted NO on prioritizing national debt reduction below tax cuts. (Apr 2000)
Voted YES on 1998 GOP budget. (May 1997)

http://www.ontheissues.org/john_mccain.htm

[sfvrealestate]

Laker, read Sheila. That's what the current Republican administration has given you, and it's very unlikely that McCain will reverse any of that.

And for all of you "foreclosed-on people can always rent" posters, check this out: http://money.aol.com/news/articles/_a/new-faces-join-
nations-homeless/20080626133909990001?icid=
200100397x1204768201x1200223567. Sorry, no tiny url. Here's a quote from the article:
"Nearly 61% of local and state homeless coalitions say they've seen a rise in homelessness since the foreclosure crisis began in 2007, according to a study released in April by the National Coalition for the Homeless.

According to the study, which let respondents offer multiple replies when asked where they're headed once their property is foreclosed on, 76% of displaced homeowners and renters are moving in with relatives and friends. About 54% are moving to emergency shelters. About 40% are already on the streets. "

[shockg]

"Look for the median house price to drop to about $115k.
Then you can buy."

LOL. Flaws everywhere in your argument. Too many to bother with. This was good for a laugh though.

[E]

SFVRE...

Don't try to guilt us in to buying an overpriced house.

Maybe had they chosen to rent instead of taking on toxic financing they wouldn't be in their position.

And WRT the toxic financing (OPTION ARMS ESPECIALLY) sure...the buyer was dumb. But over the last couple years RE Agents portrayed themselves as having their clients best interests in mind.

Where the F were they?

GIve it time...the more people lose their homes the harder it will be for mortgage brokers and realtors to sleep at night as they'll FINALLY understand the role that they played...especially when it is their former clients losing their homes.

So...what should we do about these people losing homes so that they don't end up homeless?

Easy...lodge them with their old REALTOR(tm) friend who helped them into that position.

[shockg]

Laker didn't anticipate the Government stepping n to help struggling owners back in 2005 when he sold his home and had visions of dollar signs dancing in his head. The only dollar signs he is seeing are the ones he's throwing away to pay his rent and taxes.

[Cal]

Shockg,

I'd have so much more respect for you being a troll if you were actually good at it. Maybe you could put a little more effort into it. At least be entertaining.

[E]

Helping struggling homeowners does not mean that people can sell their houses at overinflated prices. It just helps out those (few) homeowners that want to stay in their owner occupied residence...in other words...their home. And it comes at an expense if you have to share any appreciation..

[Tokyo Temp - ex LA Renter]

Laker,

Really, I would expect more from you, unless you were attempting humor. :-)

The Yen is like a penny not the dollar. So yea I make millions here in Yen, but a loaf of bread is 150 Yen and my apartment is 239,000 yen/month!

Though, Inflation is JUST starting to rear it's ugly head here and if you thought it was expensive now! Look out!

[Carlos T]

It's really simple. Rising interest rates are happening for at least 2 reasons. Your reading how banks are "hoarding cash" right? 1. Well, they are.... A little higher rate means they keep more of their cash on hand. 2. banks are rising interest rates to hedge against inflation . Inflation kills banks. They give you $100,000 today and they get the the $100,000 back in 30 years, but in 30 years that same $100,000 may have the purchasing power of $30,000. They have to raise interest if inflation is rising.

[Spencer Rascoff]

Spencer from Zillow here.

@150 multiple choice questions: You wrote "Even though it's Zillow, they're still realtors!" Not true. Zillow is a real estate informational website. We're not realtors, and we have no axe to grind one way or the other in terms of what's happening to housing prices or mortgage rates.

@Inland Empire. You wrote: "Zillow is out to make a buck because its a business. I look for them to get sued at some point for various things." Hope you're wrong.
"One of them would be wrongly describing some homes despite having correct information. I know of at least one home that is described as being in a less-than-desirable area when in fact, its in a different area that is highly desirable." Zestimates are a starting point to determining a home's value. Buyers, sellers and owners should work with a licensed professional to refine Zillow's valuation and arrive at an even more precise market price.