December 09, 2003

fortune: your house may soon be worth less

Fortune has an article this month on The New Home Economics. You can't read the whole thing unless you're a subscriber (I'm not), but I thought this quote was pertinent:

"In housing, Americans typically are buying a monthly payment," says Mark Zandi, a housing specialist with Economy.com. "So if rates fall, bingo! They're willing to pay $500,000 for a house that two years ago sold for $400,000 because the carrying costs stayed the same."

So, reversing that, you'd expect rate hikes to lower housing prices. Given the recent talk from the Fed, it seems unlikely that rate hike is a danger to housing prices in the next few months; and even after rates start to rise, it's likely they'll do so gradually with the hopes of avoiding a nationwide bust. Seems like the greatest dangers to housing in the short term is that talk of a housing bubble refuses to die and metro area rents are on the decline.

This behavior of letting the payment set the price seems dangerous since, with low rates, it leads you to increase your debt without regard to your equity.

[via Business Pundit]

Posted by dapkus at December 9, 2003 11:08 PM | TrackBack