What is the reason for falling house prices despite reduction of interest rate?
Generally, average people thinks when interest rate is low there are demand for the houses and house prices will go up when interest rate come down. We all know it did not happen in the USA despite several interest rates cut. Instead, we see collapse of housing market and bottom of the housing market has not reached yet.
In some countries just started to reduce their interest rate and average people and some real estate brokers are forecasting houses prices to go up. I do not know how they are going expect higher housing prices when there are so many problems to adders such as inflation, collapse of lenders and borrowers, weak sentiments and. fundamentals, falling currency value and less disposable income etc.
Any other thoughts. Thanks.
Best Answer
4075 points
EthanR answered one year ago …
Hi MNSL. Big question, where to begin? Ok, first of all, never listen to Real Estate Brokers on a quesiton like that, or for that matter, anyone from the National Association of Realtors, because they all have an axe to grind. If they can convince people that the market is turning around or now is a great time to buy, then sales will pick up and they make more money.
Instead, you have to look at objective sources. What are the closed sales figures? Average time on the market? Number of homes for sale in an area? Etc.
Ok, to answer your question. These are the reasons that home sales have still not turned around, despite higher interest rates:
1) Tighter mortgage credit standards are precluding many people from getting a loan
2) Higher down payment demands for conventional mortgages. No more zero down, lenders are now asking for 5 or 10% down. The only alternative is FHA, and that is still 3% and about to go to 3.5%.
3) Ongoing fear that potential buyers have that prices will continue lower, creates a catch 22 for falling prices. The more people fear, the lower the prices will go.
4) A high number of foreclosures and short sales are putting downward pressure on prices.
5) Fed rate cuts do not lead mortgage prices lower. A weaker economy pushes up bond prices, which in turn drop mortgage rates, which in turn cause the FED to cut the rates to the banks.
6) Inventory numbers are still very high and so are days on the market
By the way, remember all that talk about lower FED prices would really help the banks? Have we seen any evidence of that? I don't think so. CNBC.com has an article on it today in which it is predicted that the FED will cut rates again over the winter. Mortgage rates have been coming down very recently, and will probably continue to do so in anticipation of the FED cut.
Eventually, when the prices and interest rates are both very low, it will spur more interest in buying. But the key will be whether or not consumers can get their credit scores up high enough, their debt to income ratios low enough, and the down payment they need, in order to be able to buy the bargains.
Answers
951 points
Grudun answered one year ago …
The biggest problem is what EthanR said as his points 1 and 2. A lot of people want to buy right now but the banks are making it a torture session to get approved for a loan if they can find ANYTHING not to like. One example is the lender wanting to see pay stubs, an offer/raise/salary letter, and a recent letter from the employer addressed to that specific lender again confirming employment and details of compensation. And any one of those items will result in a delay in being able to get a loan making it difficult to purchase. Add to that the fact that few people who want to buy have the down payment. Most people who would have saved a 10-20% down payment to buy today bought 2 or more years ago without a down payment during the easy lending times.
And another issue EthanR didn't bring up is buyer fatigue. With so a majority of listings being either short sales or extremely overpriced buyers are getting tired of having to search through 30-100 listings just to find a couple that MIGHT be good buys and then looking at them carefully to see if there are hidden issues(such as damage by the old owner, a short sale that doesn't say so clearly, or regular problems with the property no in the listing). This is creating fatigue in both buyers and some of the "surviving" realtors who are having to put out many times the effort to find a reasonable property.
825 points
Dragonsbane answered one year ago …
In the end, like all markets, the housing market is all about supply and demand. There are too many damned houses in the US (too much supply) and not enough buyers (low demand). The primary reason for this is that the prices for these homes are still far too high. All of the factors mentioned above compound the problem, but the simple fact of the matter is that prices are too high. When they fall enough, demand will increase to match the supply and there will no longer be too many houses on the market.
As a side note, I'm astounded that people who can't afford to put 10% down on a house think that they should own a house to begin with. I don't live in the US, so I probably have a different perspective. But personally, I don't think people should be buying a house without 20% down. If people can't afford to save up a meager 10 or 20% downpayment, maybe they should just rent. The same way people who don't make half a buck a year shouldn't be driving Maseratis. The sense of entitlement in the US is completely appalling.
