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

To: biometricgngboy who wrote (14996)	11/11/2003 5:50:27 PM
From: biometricgngboy	Read Replies (1) \| Respond to of 306849

[continued from previous post] Also, when rates go up, buyers just opt for adjustable rate mortgages (ARMs), which have lower rates than fixed loans. "When rates started picking up after the last refi boom in 1993, people didn't leave the market, they just shifted into ARMs," said Eric Belsky, executive director of Harvard's Joint Center for Housing Studies. According to David Stiff, director of economic research for Fiserv Case Shiller Weiss , rates went up 225 basis points (2.25 percentage points) in 1994. "Price appreciation really slowed but values didn't drop off," he said. Douglas Duncan, chief economist for the Mortgage Bankers Association of America, estimates that if 30-year fixed mortgages jump past the 7 percent mark, home prices will decline 3-to-5 percent. "You won't see any serious slowing unless rates jumped to 8 percent, in which case I'd expect a 10 percent decline in values," said Duncan. Even then, he argued, prices would gradually come back as home buyers get used to a new, higher level of interest rates. Some markets, some homeowners, more vulnerable Some markets will surely feel more pain than others. "I'd be most concerned in places where housing affordability is an issue because the effects of rising interest rates are even more pronounced," said Stiff. According to the National Association of Realtors affordability index , San Diego was one of the least affordable cities as of the end of 2002. There median-income families had only 69 percent of the income needed to buy a median-priced home. In Peoria, Ill., on the other hand, families in the median had nearly three times the income needed to buy a median-priced home. "In cheaper markets interest rates probably won't matter as much as the local economy," Stiff added. "These are places where new supply matches new demand, and you just have steady appreciation." Similarly, not all homeowners will suffer the same. If you're not planning to move for years, a decline won't have as much of an impact. But a decline could be a real problem for Americans who have taken advantage of the runup in prices to do cash-out refinancings. They could very well owe more than their house is worth -- bad news if they are forced to sell. "People always say they won't move," said Talbott , "but, remember, people move for three bad reasons (divorce, job loss, and medical emergency) and one good one (job opportunity). Under all of those scenarios, they have no choice."