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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: MulhollandDrive who wrote (11741)	7/24/2003 6:46:28 PM
From: GraceZ	Read Replies (1) \| Respond to of 306849

House prices and interest rates don't move instantaneously in lock step, there is a lag as sellers are reluctant to face up to lower sale prices until the buyers start to disappear (they take their homes off the market), so what happens is that when rates rise sharply people who do buy, wind up buying a high priced house with a higher interest rate or get bumped down to a lesser house because they can't afford the payments or they engage an adjustable with the hope that they can refi later. For the most part people seem to be oblivious to the total price of a house until they sell and are far more concerned with the monthly payment. No matter what your interest rate that first 5 years on a 30 year is almost ALL interest so the tax consequences don't even get figured for most. The high standard deduction reduces the benefit of the tax write off for a lot of first time buyers but almost no one thinks of it that way, they just look at the total on the itemized deduction schedule. What is really sad is that when a first time buyer of limited means gets in the market at the end of a long boom they are usually buying in an area that was the last to see a rise in price, but unfortunately these marginal areas are usually the first to get hit with price declines while the high demand areas stay firm because demand always out strips supply at any price in the hot areas. As well as the fact that the first time buyer is most likely to have financed the closing costs or mortgage insurance or FHA premium, so they often start out under water right from day one. The good news is that a enormous percentage of them stick with it and become long time home owners even when they spend a few years upside down in their loans. People have a sort of self protection mechanism when it comes to money and their homes, they bury the unrealized loss deep in the recesses of their brain and don't allow themselves to see it. It's only when they are forced to come to terms with it when they have to sell the house that it hits "home".